EX-10.11





Exhibit 10.11




Guangsha Construction Group Co., Ltd




Lu Chunliang




And




China Hydroelectric Corporation




In Matter of




Qingtian Wulitin Hydropower Development Co., Ltd



Enter




Equity Interest Transfer Contract




December 13, 2007




 









 





Contents




	 	 	 	 	 
	Chapter One Definitions of the Contract
	 	 	3	 
	 
	 	 	 	 
	Chapter Two Transfer Object
	 	 	9	 
	 
	 	 	 	 
	Chapter Three Purchase Price
	 	 	10	 
	 
	 	 	 	 
	Chapter Four Capital Increase
	 	 	13	 
	 
	 	 	 	 
	Chapter Five Authorization Approval and Handover
	 	 	15	 
	 
	 	 	 	 
	Chapter Six Assumption of Credits and Debts
	 	 	17	 
	 
	 	 	 	 
	Chapter Seven Rights and Obligations
	 	 	19	 
	 
	 	 	 	 
	Chapter Eight: Fulfillment and Unilateral Termination
	 	 	24	 
	 
	 	 	 	 
	Chapter Nine Representations And Warranties By The Parties
	 	 	25	 
	 
	 	 	 	 
	Chapter Ten Employees
	 	 	36	 
	 
	 	 	 	 
	Chapter Eleven Confidentiality
	 	 	37	 
	 
	 	 	 	 
	Chapter Twelve Breach Of Contract
	 	 	38	 
	 
	 	 	 	 
	Chapter Thirteen Force Majeure
	 	 	41	 
	 
	 	 	 	 
	Chapter Fourteen Resolution of Disputes
	 	 	41	 
	 
	 	 	 	 
	Chapter Fifteen Applicable Law
	 	 	43	 
	 
	 	 	 	 
	Chapter Sixteen Miscellaneous
	 	 	43	 






 









 





Equity Interest Transfer Contract



This equity interest transfer contract (hereinafter referred to as “Contract”) is made and entered
into on December 13, 2007 at Hangzhou City, Zhejiang Province of
P. R. China by and among:



Party A: China Hydroelectric Corporation (hereinafter referred to as “Transferee”), a company
registered and established under the laws of Cayman Islands, registered address at 558 Lime Rock
Road, Lime Rock, Connecticut 06039, authorized representative John D. Kuhns, and president of the
company;



Party B: Guangsha Construction Group Co., Ltd, a company registered and established under the laws
of People’s Republic of China, registered address at 166 Yuguxilu, Hangzhou City, Zhejiang
Province, legal representative and chairman of the board of directors Lou Ming.




Party C: Lu Chunliang




ID Number: 332526194904180030



Residence Address: Zhenxinglu 1, Wuning Street, Dongyang City, Zhejiang Province




Party B and Party C are hereinafter collectively referred to as “Transferors”. Each of them is
referred to as “Each Transferor”.



WHEREAS:



Qingtian Wuliting Hydropower Development Co., Ltd (hereinafter referred to as “Object Company”),
was established on December 21, 2001. Its business period is 20 years, and the registered capital
is RMB 80,000,000. The company owns a hydropower project , i.e. Wuliting hydropower project,
(“Hydropower Project”), whose total installation is three power units of 14,000 KW and total
installed capacity is 42,000 KW. The Hydropower Project is still under construction, however, two
units have been in operation, one is expected to be in operation in March 2008.




The Object Company has legal ownership and operational right of the Hydropower Project.



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Party B contributed RMB 16,000,000 to the registered capital of the Object Company, accounting for
20% of its total equity interest; Party C contributed RMB 64,000,000 to the registered capital of
the Object Company, accounting for 80% of its total equity interest.



Each Transferor will transfer to the Transferee, and the Transferee will purchase the Transferors’
total equity interest in the Object Company (Party B’s interest: 20%, Party C’s interest: 80%,
Party B’s and Party C’s interest will be collectively referred to as “Object Equity Interest”).
Upon the Transferee’s acquisition of such equity interest, the Object Company shall become a
wholly foreign-owned enterprise.



Zhejiang Guangsha Stock Co., Ltd, Zhejiang Guangsha Hydropower Investment Co., Ltd, Party C and
the Transferee executed the Framework Agreement on October 27, 2007.



For the above purpose, after friendly consultations on the principles of equality and mutual
benefit, the parties to this Contract have reached the following terms and conditions in accordance
with the Corporate Law of the People’s Republic of China, the Contract Law of the People’s Republic
of China, the Law of the People’s Republic of China on Wholly Foreign-owned Enterprises, and other
applicable Chinese laws and regulations. The parties will abide by and fulfill the Contract in good
faith.




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Chapter One Definitions of the Contract





			
	Article 1.	 	Definition






The terms hereinafter used in this Contract shall have the meanings set forth as
follows:




“AIC” means the Administration for Industry and Commerce of the PRC or, with respect to
the issuance of any business licenses, filings or registrations effected by or with the
State Administration of Industry and Commerce or any government entity which is
similarly competent to issue such business licenses or accept such filings or
registrations under the laws of the PRC.




“Audited Balance Sheet” shall mean the balance sheet audited by Beijing Jingdu CPA
Limited, a copy of which is attached hereto as Appendix 2.




“Base Date” shall mean September 30, 2007.




“Capital Increase” shall mean the newly registered capital increase and investment in the
Object Company by the Transferee in the amount of RMB 147,759,809 upon the Transferee’s
acceptance of the Object Equity Interest.




“Claims” shall mean claims (arbitration or litigation), actions, demands, proceedings,
judgment liabilities, damages, costs and expenses (including legal costs and
disbursements) howsoever arising.




“Delivery Date” shall mean the date on which the Object Equity Interest Transfer has
undergone the formality of registering the amendments with the Administration of
Industry and the Commerce (the “AIC”) which has issued the New Business License to the
Object Company upon examination and approval.



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“Damages” shall mean any and all damages caused by direct losses and liabilities, losses caused by
obligations, shared expenses, or judgments, awards and fines (including, without limitation, those
arising out of any pending or threatened action, suit, proceeding or judgment, as well as any
settlement fees), any related reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable attorneys’, consultants’ and experts’ fees and expenses), and consequential
damages that include, but are not limited to loss of profit or any value reductions due to lost
earnings, shall be excluded to the extent permitted by applicable laws.




“Disclosed Information” shall mean the related materials explanation statement and other
information disclosed and made by the Transferors to the Transferee and its retained
intermediaries in accordance with the Framework Agreement and in the course of the due diligence
investigation of the Object Company, the Hydropower Project and the Object Equity Interest,
attached hereto as Appendix 2.




“Employees” shall mean all personnel who have either a labor or an actual or deemed employment
relationship with the Object Company or who were appointed by the Transferors to work in the Object
Company or who work in the Object Company based on some other form of employment relationship as of
the Base Date.




“Encumbrance” shall mean any mortgage, assignment, lien, charge, pledge, title retention, right to
acquire, security interest, option, trust interest, pre-emptive right, and any other restrictions
caused by other circumstances.




“Equity Interest Transfer” shall mean the transfer of all of the Object Equity Interest of the
Object Company by the Transferors to the Transferees as contemplated
in the Contract.




“Examination and Approval Authority” shall mean the relevant



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Chinese governmental departments having authority defined by relevant Chinese regulations on
examining and approving foreign investment projects to examine and approve this Contract and to
grant approval for the transfer of the Object Equity Interest and the Capital Increase
contemplated in this Contract, including without limitation, the MOC, NDRC, SAFE, AIC and (CSRC,
if applicable).




“Execution Date” shall mean the date this Contract is signed by the Parties.




“Force Majeure” shall bear the meaning ascribed thereto in Article 47.1.




“Foreign Exchange Capital Account” shall bear the meaning as ascribed thereto in Article 12.1.




“Framework Agreement” shall mean the framework agreement executed by Zhejiang Guangsha Stock Co.,
Ltd, Zhejiang Guangsha Hydropower Investment Co., Ltd and Party C, and the Transferee on October
27, 2007 concerning Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd, Qingtian Wuliting
Hydropower Development Co., Ltd, Suichang County Jiulongshan Hydropower Development Co., Ltd and
Zhejiang Guangsha Beichuan Hydropower Development Co., Ltd.




“Hydropower Project” shall mean the hydropower project located in Qingtian Wuliting, legally owned
and operated by the Object Company.




“Material Agreements” includes any oral or written agreement, arrangement, or understanding
outside the ordinary course of business, including any (a) consulting agreement not terminable on
notice within thirty (30) days, (b) agreement with respect to any employee of the Object Company
providing any term of employment or compensation guarantee, (c) agreement on change in control or
any other agreement with any executive officer or other key employee of the Object Company



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of
which the benefits are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Object Company of the nature contemplated by the
Contract, (d) agreement or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, of which any of the benefits will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions
contemplated by the Contract or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by the Contract, (e) agreement containing
covenants that limit the ability of the Object Company to compete in any line of business or with
any person, or that involve any restriction on the geographic area in which, or method by which,
the Object Company may carry on its business (other than as may be required by law) or exclusive
dealings of contracts that limit the ability of the Object Company to contract certain persons or
to engage, whether directly or indirectly, in certain activities.




“MOC” means the Ministry of Commerce, or, with respect to any matter submitted for examination and
approval by the Ministry of Commerce of the People’s Republic of China, any local government
authority of commerce entity which is similarly competent to examine and approve such matter under
the laws and regulations of the PRC.




“NDRC” means the National Development and Reform Commission, and any local governmental
development and reform commissions.




“New Business License” shall mean the new business license of the Object Company issued by the
industrial and commercial administration after completion of the Capital Increase and Equity
Interest Transfer.




“Object Company” shall mean Qingtian Wuliting Hydropower Development Co., Ltd.



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“Object Company Financial Statements” shall bear the meaning ascribed thereto in Article 32.16.




“Object Equity Interest” shall mean (i) the 20% equity interest of the Object Company held by
Party B, fully paid, and (ii) the 80% equity interest of the Object Company held by Party C,
fully paid.




“Original Bank Loans” shall mean all outstanding loans of the Object Company as of the Base Date,
a list of which is attached hereto as Appendix 4.




“Party B” shall mean Guangsha Construction GroupCo., Ltd, a company registered and established
under the laws of People’s Republic of China, registered address at 166 Yugulu, Hangzhou City .




“Party C” Lu Chunliang




ID card No.: 332526194904180030




Residence Address: 1 Zhenxinglu , Wuning Street, Dongyang City, Zhejiang Province.




“Provisional Account” shall bear the meaning as ascribed thereto in Article 7.1 of this Contract.




“Purchase Price” shall mean the price paid by Transferee for the purchase of the Object Equity
Interest as set out in Article 5 pursuant to the Contract.




“PRC” or “China” shall mean the People’s Republic of China, and insofar as this Contract is
concerned, shall exclude Hong Kong, Taiwan and Macao.




“Renminbi” or “RMB” shall mean the legal currency of the PRC.



7









 






“SAFE” means the PRC State Administration of Foreign Exchange, and any local governmental foreign
exchange authorities.




“SCRS” means the China Securities Regulatory Commission and any of its designated agencies.




“State-owned
Property Right”, pursuant to Property Law of the People’s Republic China and other
related regulations, shall mean all property rights owned by the PRC government or state-owned
enterprises which are not allowed or allowed under certain terms and conditions to be
transferred or allotted to natural persons, private companies, or institutions.




“Taxes” means all national and local internal revenue taxes under PRC laws including without
limitation all income, capital gains, withholding (including expanded, final and compensation
withholding), value added, documentary stamp, percentage, payroll, excise and any other taxes,
levies, charges, deductions or duties of any nature and includes any corresponding interest,
expense, fine, penalty or other charge payable, claimed, estimated or assessed in respect of any
such Taxes and imposed by any governmental authority.




“Taxation Claims” means claims for taxation which have been made or may hereafter be made against
the Object Company:




(a) before the Delivery Date and in respect of or arising from any transaction effected or deemed
to have been effected by the Object Company, whether reported or filed in respect of, prior to, on
or after such date; or




(b) by reference to any income, profits or gains earned, accrued or received by the Object Company
on or before the Delivery Date, whether reported or filed in respect of, prior to, on or after [      ];




“Third Party” shall mean any natural person, legal entity, or any other



8









 






organization or entity, other than the parties to this Contract.



Chapter Two Transfer Object





			
	Article 2.	 	Subject of the Equity Interest Transfer






The subject of this Contract is the Object Equity Interest. Subject to the terms and
conditions herein, the Transferors hereby sell and transfer to the Transferee, and the
Transferee buys and acquires from the Transferors the Object Equity Interest together
with all rights, interests and entitlements attached thereto and free of any Encumbrance
in consideration of the Transferee paying the Purchase Price to the Transferors in
accordance with the terms and conditions of this Contract.




			
	Article 3.	 	Pre-emptive purchase right






Each Transferor hereby waives its respective pre-emptive purchase rights to the equity
interest of the Object Company to be transferred by the Transferors to the Transferee
pursuant to the terms of this Contract.




			
	Article 4	 	The Transferors agree to comply with the terms and conditions of this Contract and to
transfer to the Transferee the Object Equity Interest held by them and all the rights,
interests and entitlements attached thereto. The Transferee agrees to comply with the terms of
the Contract and accepts the Object Equity Interest. After the transfer of the Equity Interest
is completed in accordance with the provisions of this Contract, the Transferee will hold 100
percent (100%) of the equity interest in the Object Company and the Transferor will no longer
hold any equity interest in the Object Company.






9









 






Chapter Three Purchase Price





			
	Article 5	 	The Transferors and the Transferee agree that the Purchase Price shall be determined by
consideration of and reference to the assessed value of the assets of the Object Company as
set out in an evaluation report issued by assets evaluation agency (with competent
qualifications). Upon mutual consultation, the Transferors and the Transferee confirm and
agree that the final Purchase Price shall be RMB 206,880,191
(the “Purchase Price”). The
respective amount of payment made to each Transferor shall be as follows:






Party B: RMB 41,376,038




Party C: RMB 165,504,153




			
	Article 6	 	The Purchase Price hereunder shall be paid by the Transferee in equal to the Purchase
Price unless the Contract provides otherwise. The Transferors and the Transferee agree that in
the event any amounts expressed in RMB are to be paid in US Dollars, the parties will apply
the RMB/US Dollars exchange rate equivalent to the median rate of RMB and US Dollars published
by People’s Bank of China one on the date of payment specified in this Contract.






			
	Article 7	 	The Remittance and Payment the Purchase Price






	7.1	 	Promptly upon approval of this Contract by the Examination and Approval Authority, thereby
converting the Object Company into a wholly foreign invested enterprise (hereinafter referred
to as a “WFOE”), and the approval by SAFE for the opening of a domestic provisional foreign
exchange account for the Equity Interest Transfer, the Transferee shall open a provisional
foreign exchange capital account (the “Provisional Account”).
	 
	7.2	 	Within five (5) days of opening the Provisional Account, and on the condition that the
provisions under Article 7.2.1 are completed and satisfied by the Transferee, the Transferee
shall remit the Purchase Price in a lump-sum to the Provisional Account.





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	7.2.1	 	The Parties to this Contract agree that all obligations of the Transferee under this Contract
including but not restricted to, remitting of the Purchase Price amount to the Provisional Account,
are subject to the fulfillment of the following conditions:
	 
	7.2.1.1	 	The assumption and succession of the previous bank loans of The Object Company has been
consented and acknowledged by the lending bank in accordance with Article 20.8.3 of this
Contract.
	 
	7.2.1.2	 	The obligations of the Object Company and the Transferors under the Contract shall have
been duly performed and the representations and warranties of the Transferors contained in
this Contract shall be true and correct.
	 
	7.2.1.3	 	The Transferee shall have completed all business, legal, project and financial due
diligence, and any problems requiring resolutions identified by any Transferee shall have been
resolved to the Transferee’s satisfaction.
	 
	7.2.1.4	 	As of the exact day of execution of this Contract, the Letter of Guarantee, attached hereto
as Appendix 5, has been signed by on terms and conditions satisfactory to the Transferee.
	 
	7.2.1.5	 	The Transferors and the Transferee has determined the final amount as specified in Article 52.2.






			
	Article 8	 	The Payment of the Purchase Price






	8.1	 	First Installment
	 
	 	 	On the date the Purchase Price reaches the Provisional Account in accordance with legal
procedures and upon satisfaction of the following conditions, the Transferee shall pay 80%
of the Purchase Price (“First Installment”) to the Transferors:






	8.1.1	 	The Transferors has obtained written documents of Lishui municipal government’s consent to
the Equity Stakes Transfer specified in Article 22.13 of the Contract










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	8.1.2	 	The Object Company shall have legally obtained the Social Insurance Registration
Certificate and Water Procurement Certificate.
	 
	8.1.3	 	The Transferors and the Transferee agree that 80% yield from power generation of the
Hydropower Project belongs to the Object Company from the date of the First Installment to the
date of the second installment, and the Transferors shall not dispose of or reduce the
aforesaid yield in whatever manner, for which the Transferee is entitled to pursue
compensation directly from the Transferors.
	 
	8.2	 	Second Installment
	 
	 	 	While the transfer stipulated under Article 17 hereunder is completed and confirmed in
writing by both of the Transferors and the Transferee, the Transferee shall pay 16% of
the Purchase (“Second Installment”) to the Transferors.
	 
	 	 	The Transferors and the Transferee agree that the entire yield from power generation of
the Hydropower Project belongs to the Object Company upon payment of the Second
Installment, and the Transferors shall not dispose of or reduce the aforesaid yield in
whatever manner, for which the Transferee is entitled to pursue compensation directly
from the Transferors.
	 
	8.3	 	Performance Deposit
	 
	 	 	2% of the Purchase Price shall be reserved as a performance deposit for the Transferors.
The performance deposit guarantees: on the date of examination and acceptance, the Object
Company and its Hydropower Project are free of any material potential engineering trouble
and any defect in contracts with respect to environment, land, relocation and settlement,
uploading to and connecting to power grid , and shall have obtained the State-owned Land
Use Right Certificate for the construction land. The Transferee is entitled to directly
deduct the appropriate amount from the aforesaid performance deposit in the event of any
damage or loss incurred due to such trouble or defect. Upon completion of examination and
acceptance and issuance of the power business permit, the Transferee will return such
performance deposit to the Transferors with no interest thereupon.




12









 






	8.4	 	2% of the Purchase Price shall be reserved and paid as quality deposit in accordance
with Article 53 hereunder.
	 
	8.5	 	If any Taxes, fees or other charges are levied on the Purchase Price in the PRC, the same
shall be borne by the Transferee and the Transferors, however, the Stamp Tax, to be paid by
the Transferee through the Transferors lawfully withholding it, shall be paid to the
Transferors within three (3) days upon effectiveness of this
Contract.






			
	Article 9	 	The Transferors shall issue official and valid receipts to the Transferee promptly after
each receipt of the Transferee’s payment of the Purchase Price. Within five (5) days after
receipt of the Transferee’s payment of the Purchase Price, the Transferors shall have
completed the foreign exchange registration of the Equity Interest Transfer with SAFE where
each of the Transferors is located, by obtained such certificate of registration, and
provided it to the Transferee.






			
	Article 10	 	On the date of the First Installment stipulated in Article 8.1 hereunder, the
Transferors shall repay RMB 2,500,000 of the entire deposit of RMB8,000,000 made by the
Transferee pursuant to the Framework Agreement, to the Third Party company within China
designated by Transferee.





Chapter Four Capital Increase





			
	Article 11	 	Capital Increase






	 	 	Simultaneously with the Equity Interest Transfer, the sum of
RMB 147,759,809
(the “Capital Increase”) will be injected into the Object Company to increase the
registered capital to RMB 227,759,809.






			
	Article 12	 	Payment of the Capital Increase






13









 









	12.1	 	Promptly upon the approval of this Contract by the Examination and Approval Authority, the
Transferors and the Transferee shall work jointly on opening a Foreign Exchange Capital Account for
the Object Company(“Foreign Exchange Capital Account”) jointly maintained by them. The Object
Company’s official seal (kept by the Transferors) and the personal seal of Transferee’s authorized
representative (kept by the Transferee) will be reserved at the Foreign Exchange Capital Account.






			
	Article 13	 	Use of the Capital Increase






	13.1	 	The Capital Increase will be used to discharge those outstanding debts of the Object Company
incurred after the restructuring of credits and debts as listed in Appendix 7, and to satisfy
the requirements for running the Object Company and expanding business.
	 
	13.2	 	The Transferors shall, within three (3) days of the Transferee remitting the Capital Increase
to the Foreign Exchange Capital Account, complete the restructuring of its credits and debts
listed in Appendix 7 of this Contract and sign official debt restructuring agreements
(“Restructuring Agreements”) with creditors and debtors of the Object Company, the Object
Company itself and the designated third party of the Transferors in form and content approved
by the Transferee.
	 
	13.3	 	The Capital Increase amount shall not be disbursed by the Object Company until the
following conditions have been satisfied (including but not limited to the difference from
credits and debts restructuring, see Appendix 6 for the specific amount):
	 
	13.3.1	 	The Transferors shall have completed the restructuring of its credits and debts set forth
in Appendix 7, as evidenced by a signed the restructuring agreement between the creditors
and debtors, the Object Company and




14









 






	 	 	the third party designated by the Transferee in form and content approved by the
Transferee.






			
	Article 14	 	After the Equity Interest Transfer and the Capital Increase has been completed, the
registered capital of the Object Company shall be changed to RMB 227,759,809.






Chapter Five Authorization Approval and Handover




			
	Article 15	 	Within three (3) days of execution of this Contract, the Transferors and the Transferee
shall make joint application to the Examination and Approval Authority to perform the
examination and approval procedures for this Contract. If examination and approval of this
Contract is required from CSRC, the Development and Reform Commission, the Water Conservancy
Department and the Power Department, this Contract shall he submitted to the competent
departments of such organizations for such examination and approval.






			
	Article 16	 	Upon payment of the First Installment, the Transferors and the Transferee shall
co-operate and jointly undertake the registration of the transfer of the Object Equity
Interest and apply for the New Business License with the relevant governmental authorities.






			
	Article 17	 	Handover






	17.1	 	Upon payment of the First Installment, the Transferors and the Transferee
shall organize a team responsible for the Hydropower Project handover and take joint and
active actions to conduct the handover of the Object Company, the Hydropower Project and
the Object Equity Interest, including but is not limited to handing over the production,
operation and management, accounting and finance, assets checking and accounting, file
documents, certificates and licenses, seals and project construction
to the Transferee.





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	17.2	 	The Transferor shall assure that the assets of the Object Company and all rights and
interests handed over to the Transferee shall not have any loss or damage compared with
the result of Appendix 7 and the audit by the Transferee listed in Appendix 2. The
Transferors shall make a comprehensive and complete handover to the Transferees pursuant
to the aforesaid result of such handover is confirmed by the Transferees.
	 
	17.3	 	The handover shall include but is not limited to:






	 	(1)	 	The business seals, special financial seals and special contract
seals, [to list all] of the Object Company shall be handed over to the Transferee;
	 
	 	(2)	 	The Transferors and the Transferee shall check and count the assets of
Object Company, compile the assets inventory and perform the handover with
confirmation via signatures of the jobsite representatives of the Transferors and
Transferee. The assets loss ascertained through the assets check and count
procedure shall be compensated by the Transferors at the replacement value for such
missing assets;
	 
	 	(3)	 	All original engineering drawings, contracts, agreements (including but
not limited to project contracts, equipment contracts, installation contracts and
material contracts) and any other file documents of the Hydropower Project shall be
handed over to the Transferee;
	 
	 	(4)	 	The financial books and the accounting files shall be handed over to
the Transferee;
	 
	 	(5)	 	The Transferors shall make technical disclosure to the Transferee
about the companies responsible for the construction of the Hydropower Projects,
equipment supply (manufacturer), design, supervision, quality inspection, output
line and otherwise; and





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	 	(6)	 	Handover of all materials and files of the Object Company;
	 
	 	(7)	 	Other handover procedures as may be reasonably required by the
Transferee.






	17.4	 	The handover shall be completed within seven (7) days upon the First Installment. The
completion of the handover shall be certified and confirmed by the representatives of the
parties in writing.
	 
	17.5	 	The Transferors shall assure in the course of the handover, the construction and production
of the power station is continuous, steady and secure.
	 
	17.6	 	The Transferors shall give their full cooperation and complete the handover relating to the
Equity Interest Transfer. If the Transferors do not give cooperation and incur Damages to the
Transferee or to the Object Company after the Equity Interest Transfer is completed, the
Transferors shall bear the liability of compensation pursuant to the relevant laws.
	 
	17.7	 	The Transferors agree that the Hydropower Projects and related equipment and facilities of
the Object Company have no quantitative and qualitative problems inconsistent with the
evaluation report of Appendix 6. If any quantitative and qualitative problems with the
hydropower projects and equipment incur any losses to the Transferee, the Transferee is
entitled to deduct corresponding sum from the fund payable or seek compensation from the
Transferors.





Chapter Six Assumption of Credits and Debts





			
	Article 18	 	The credits and the debts of the Object Company listed in Appendix 6





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	 	 	to this Contract (hereinafter referred to as the “Credits and Debts”) shall be assumed
by the Object Company after the Equity Interest Transfer is completed:






			
	Article 19	 	In accordance with Article 13.3, the following credits and debts of the Object Company
shall be assumed by the Transferors:






	19.1	 	Except the Original Bank Loans disclosed by the Transferors, the monetary fund, the accounts
receivables and the accounts payable listed in Appendix 7 and arising prior to the Base Date
shall be enjoyed or borne by the Transferors as may be applicable. In this regards, the
Transferors shall indemnify and save harmless the Transferee from any Claims, demands and
losses arising out of such monetary fund, accounts receivable and accounts payable noted in
Appendix 7.
	 
	19.2	 	Except for the Disclosed Information set forth in Appendix 3, the debts (including contingent
debts) of the Object Company as of the Base Date which the Transferors have not disclosed in
Appendix 3 of this Contract, when executing this Contract.
	 
	19.3	 	All the debts (including contingent debts and debts that have not formed part of assets, for
example litigation) of the Object Company incurred during the period from the Base Date of the
Equity Interest Transfer to the Delivery Date






			
	Article 20	 	Financial affairs from the Base Date to the Delivery Date (“Period”)






	20.1	 	Except as otherwise provided for in Article 8, the credits and yield of the Object Company
within the Period shall belong to the Transferors, allocated and disposed of in accordance
with the previous Articles of Association.
	 
	20.2	 	Taxes (if any return) incurred prior to the Delivery Date shall belong to the Transferors. The
said taxes received by the Object Company after the Delivery Date shall be paid to Zhejiang
Guangsha Hydropower Investment Co., Ltd.





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	20.3	 	Within the Period, the interest on the loans of the Object Company shall be borne
by the Object Company.






	20.4	 	On the immediate date following the Delivery Date, the Transferors and the Transferee shall
jointly confirm the aforesaid amounts.






			
	Article 21	 	For the Credits and Debts which shall be assumed by the Transferors in accordance with
Article 19 of this Contract, if the right holder makes claim against the Object Company and
the Object Company assumes the credits and debts in advance in favor of the right holder, the
Object Company or the Transferee will be entitled to seek compensation from the Transferors
separately pursuant to this Contract and the Transferors shall indemnify and save harmless
the Object Company or the Transferee from all such claims and demands (if the Transferee
assumed such credits and debts). The scope of compensations shall include the debts
themselves, all costs and expenses incurred by the Object Company and the Transferee in
handling and settling the debts, including but not limited to litigation cost, arbitration
cost, enforcement cost, attorney’s cost, and travel cost.





Chapter Seven Rights and Obligations





			
	Article 22	 	Rights and Obligations of the Transferors






	22.1	 	When this Contract is signed, the Transferors shall present to the Transferee the valid legal
documents and the internal approval and authorization documents specified in Article 32.1 of
this Contract that evidence the establishment of the Object Company and that the Transferors
legally hold the Object Equity Interest.
	 
	22.2	 	Upon execution of the Contract, the Transferors shall not draw or receive dividends of the
Object Company or any other rights and interests of the Object Company Equity Interest and
shall not commit any act which damages and deceases or may damage and decrease the Object
Company’s assets, rights and interests and the shareholders’ rights and interests.





19









 






	22.3	 	Upon execution of this Contract, the Transferors shall not exercise any rights over
the Object Equity Interest, such as actions to establish a mortgage, pledge, transfer
and trusteeship over the Object Equity Interest which may influence the actual
fulfillment of the Contract and the Transferee’s procurement of the Object Equity
Interest as provided in this Contract.
	 
	22.4	 	Upon execution of the Contract, the Transferors agree that they and the Object Company shall
manage the Object Company normally with due care of a good faith managing party, which shall
include but not limited to (i) no change to the constitutional documents of the Object
Company; (ii) no change to the accounting policies of the Object Company after the execution
of the Contract; and when they dispose of the assets, credits and debts and all other rights
and obligations of the Object Company in the normal course of business, they shall give
advance notice to the Transferee and procure approval from the Transferee, otherwise all
consequences arising from such disposal actions shall be borne solely by the Transferors
themselves.
	 
	22.5	 	The Transferors shall actively assist the Transferee to handle all approval procedures of the
Equity Interest Transfer and provide all necessary cooperation.
	 
	22.6	 	The Transferors shall actively assist the Transferee to handle the registration procedures
related to the Equity Interest Transfer and agree
that they and the Object Company shall provide all necessary
cooperation.
	 
	22.7	 	The Transferors shall pursuant to the provisions under this Contract conduct the handover of
the Object Company and the Object Equity Interest and the Transferors agree that the assets,
lights and interests of the Object Company handed over to the Transferee shall not have any
loss or damage compared with the assets, rights and interests confirmed by audit and
assessment on the Base Date.
	 
	22.8	 	The Transferors shall procure continuity of the original bank loans of the Object Company
listed in the Appendix 4 to this Contract as follows:




20









 






	22.8.1	 	Prior to the date of the Equity Interest Transfer, for matters concerning the
validity of the Original Bank Loan contracts of the Object Company, the amount of the
loans, the terms of the loans, the deadline of repayment and the terms of extension of
the loans, the Transferors shall not commit any act adverse to the interest of the
Object Company after the Equity Interest Transfer is completed.
	 
	22.8.2	 	The Transferors agree that, the finance amount, loan terms, repayment time period, extension
terms and all other conditions promised to the Object Company by the lending banks of the
Original Bank Loans prior to the Base Date of the Equity Interest Transfer, shall not have any
change adverse to the Object Company prior to the date of the Equity Interest Transfer and
Delivery Date.
	 
	22.8.3	 	The Transferors and the Transferee shall make joint efforts to coordinate with the related
lending banks on succession of the Original Bank Loans of the Object Company. Procurement of
the said consent and confirmation from the lending banks is a precondition for the Transferee
to remit the Purchase Price pursuant to Article 7.2 to the Provisional Foreign Capital Account
of this Contract.
	 
	22.8.4	 	In accordance with the provisions of Articles 22.8.2 and 22.8.3 of this Contract, the
Transferors shall provide-relevant guarantees on the Original Bank Loans to the satisfaction
of the lending banks after the Equity Interest Transfer, and the Transferors shall procure
consent and confirmation from the lending banks that the relevant loans and loan rights shall
remain available to the Object Company after the-Equity Interest Transfer is completed.
	 
	22.9	 	The Transferors shall procure that the guarantees of the Original Bank
Loans of the Object Company shall continue to be fulfilled by the original guarantor
after the Equity Interest Transfer is completed. Upon execution of this Contract, the
Transferors shall provide the letter of commitment issued by the original guarantor of
the Original Bank Loans of the Object Company that the said guarantor will continue to
fulfill the guarantees pursuant to the original terms and conditions.





21









 






	 	 	Such letter of commitment is attached to this Contract as Appendix 8.
	 
	22.10	 	If the original guarantor of the Bank Loans of the Object Company or the Transferors comply
with this Contract and provide the guarantees of the Bank Loans of the Object Company upon
completion of the Equity Transfer, the Transferee shall pay the guarantee cost pursuant to the
following terms to the original guarantor or the Transferors: seventy-five percent (75%) of the
prevailing guarantee fee rate of the market (i.e., 3% of the guarantee amount per year), that is,
2.25% of the guarantee amount per year prior to the payment to the Transferors of the performance
deposit as specified in Article 8.3; if such payment has been made to the Transferors, the
Transferee shall pay the guarantee cost at fifty percent (50%) of the prevailing guarantee fee rate
of the market (i.e. 3% of the guarantee amount per year), that is, 1.5% of the guarantee amount per
year. Other items may be negotiated and specified by both parties separately.
	 
	22.13	 	The Transferors shall have obtained the written approval of the government of Zhejiang
Province Lishui City for the Equity Interest Transfer.
	 
	22.14	 	The Transferors shall ensure Zhejiang Guangsha Hydropower Investment Co., Ltd has obtained
the Construction Land Planning Permit, Construction Land Permit, and Construction Land
Approval as they are required for the construction of the hydropower project.
	 
	22.15	 	The Transferors shall ensure that Zhejiang Guangsha Hydropower Investment Co., Ltd will
complete the legal “completion and acceptance” process for the hydropower project and bear
relevant fees for such acceptance and renovation.
	 
	22.16	 	The Transferors shall ensure and be responsible that the Object Company has obtained the
Social Insurance Registration Certificate, and the Transferors will bear any consequence where
the Object Company is imposed on administrative punishment due to lack of such certificate.
	 
	22.17	 	The Transferors shall ensure that Zhejiang Guangsha Hydropower Investment Co., Ltd has
obtained the power business permit for the Object Company as require by operating the
Hydropower Project.
	 
	22.18	 	The Transferors shall be responsible for and ensure that Zhejiang




22









 







	 	 	Guangsha Hydropower Investment Co., Ltd has obtained for the Object Company approval of
the water procurement license.
	 
	22.19	 	The Transferors shall give timely written notice to Transferee when they come into knowledge
of any acts, events or conditions which may make the Contract impossible to be partly or
completely fulfilled.
	 
	22.20	 	The Transferors shall be entitled to receive and accept the Purchase Price pursuant to the
provisions of this Contract.
	 
	22.21	 	The Transferors shall be jointly and severally liable for the obligations, representations,
statements and warranties of each Transferor under this Contract.






			
	Article 23	 	Rights and Obligations of the Transferee






	23.1	 	Simultaneous with the Execution of this Contract, the Transferee shall present to the
Transferors the internal approval and authorization documents specified in Article 33.1 of
this Contract
	 
	23.2	 	The Transferee will assist the Transferors handle all approval procedures of the Equity
Interest Transfer and provide all necessary cooperation.
	 
	23.3	 	The Transferee will assist the Transferors to handle the registration procedures with AIC of
the Equity Interest Transfer and agree that they and the Object Company shall provide all
necessary cooperation.
	 
	23.4	 	The Transferee shall pay the Purchase Price to the Transferors and shall pay the Increased
Capital to the Object Company in accordance with the provisions of this Contract.






			
	Article 24	 	The Transferors and the Transferees shall make joint efforts and shall cooperate
preparing/completing all necessary application documentation and to complete all procedures to
facilitate the Equity Interest Transfer contemplated by this Contract, including but not
limited to, the examination and approval process and the registration and record filing





23









 






	 	 	process. All costs incurred therein shall be borne by each party respectively.





Chapter Eight: Fulfillment and Unilateral Termination





			
	Article 25	 	The parties shall fulfill their Contractual obligations fully and completely pursuant to
the provisions of this Contract.






			
	Article 26	 	The Transferee shall have the right to terminate this Contract if:






	26.1	 	Within five (5) days of opening the Foreign Exchange Capital Account specified in this
Contract, the Transferee and the Object Company fail to obtain the consent and confirmation of the
lending bank specified in Article 22.8.3 of this Contract;
	 
	26.2	 	The Transferors have not disclosed relevant facts and events prior to the Base Date, and such
facts that will impact the continued legal and normal operations of the Object Company after the
Equity Interest Transfer.
	 
	26.3	 	The Transferors have not disclosed facts and events prior to the Base Date, that will subject
the Object Company to administrative penalty, and the administrative penalty arising from such
undisclosed facts and/or events will impact the continued legal and normal operation of the
Object Company after the Equity Interest Transfer.
	 
	26.4	 	If the Transferee elects to terminate this Contract as hereinbefore provided, it shall do so
by written notice to the Transferors. Within two (2) days of receipt of the termination notice
from the Transferee, the Transferors shall repay to the Transferee all payments made by the
Transferee pursuant to the Framework Agreement and this Agreement
	 
	26.5	 	If the Transferee elects to terminate this Contract pursuant to Article 26.1 of this
Contract, the Transferors and the Transferee shall be mutually released from the provisions of
this Contract and bear no further liability.
	 
	 	 	If the Transferee elects to terminates this Contract pursuant to Articles 26.2 or 26.3 of
this Contract, the Transferors shall bear liability for






24











 






breaching this Contract under relevant provisions of this Contract.




			
	Article 27	 	If this Contract and the Equity Interest Transfer fail to be approved by the
Examination and Approval Authority, and such failure is not caused by either the Transferors
or the Transferee, this Contract shall be deemed to be terminated. The Transferors shall,
within three (3) days of the termination of this Contract, repay to the Transferee all
payments paid by the Transferee pursuant to the Framework Agreement and this Contract.
Thereafter, the parties will be mutually released from this Contract without further
liability.






			
	Article 28	 	If any Party fails to complete the transfer of the object company equity interest of
any of the other object companies under the Framework Agreement , both the Transferor and the
Transferees are entitled to terminate this Contract.






			
	Article 29	 	Unless this Contract expressly specifies otherwise or the parties agree in writing,
neither party to this Contract shall terminate or dismiss this Contract without the consent
of the other Party.






			
	Article 30	 	Any Taxes or fees arising out of execution and fulfillment of this Contract shall be
borne by each of the Transferors and Transferee according to their respective tax liabilities
under PRC law.






			
	Article 31	 	Delivery Date






On Delivery Date, valid title to the Object Equity Interest will pass to the Transferee
free and clear of any Encumbrance.



Chapter Nine Representations And Warranties By The Parties





			
	Article 32.	 	Disclosures, Representations and Warranties by Transferors





25









 






As a material inducement to the Transferee to enter into this Contract and acquire the
Object Equity Interest hereunder, each of the Object Company and the Transferors,
jointly and severally, hereby represent and warrant to the Transferee as follows:




			
	32.1	 	Each of the Transferors has full corporate power to execute and deliver the Contract, to
perform its respective obligations hereunder, and to consummate the transactions contemplated
hereby. All corporate acts required to be taken by the Transferors to authorize the execution,
delivery and performance of the Contract and the consummation of the transactions contemplated
hereby have been duly and properly taken.






			
	32.2	 	The Contract has been duly executed and delivered by the Transferors and, assuming the due
execution and delivery hereof by the Transferee, the Contract constitutes a legal, valid and
binding obligation of each of the Transferors, enforceable against each of the
Transferors in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the rights and remedies of
creditors generally.






			
	32.3	 	As of the date hereof, the registered capital of the Object Company which is RMB 80,000,000
has been fully paid in compliance with PRC law, and the Object Equity Interest is owned by the
Transferors.






			
	32.4	 	Each of the Transferors has full right and authority to transfer their portion of the Object
Equity Interest to the Transferee in accordance with the Contract and the Object Equity
Interest is not classified as a State-owned Property Right that is not allowed to be
transferred or allotted or encumbered to any natural persons, private companies, or
institutions unless in accordance with the law of PRC.






			
	32.5	 	The execution, delivery and performance of this Contract by the Object Company and the
Transferors, and the consummation by the Object Company and the Transferors of the
transactions contemplated hereby will not (i) violate any provision of the charter, by laws or
any other





26









 









organizational document of the Object Company, (ii) violate any provision of, or
constitute a default (with or without notice or lapse of time) under, or give rise to a
right of termination, cancellation or acceleration of (or entitle any party to
accelerate whether after the giving of notice or lapse of time or both) any obligation
under any agreement, indenture, undertaking or other instrument to which either the
Object Company or the Transferors is a party or by which it or any of its properties may
be bound or affected, (iii) violate any law, administrative regulations, regulatory
documents, rules, approval documents or any judgment, injunction, order or decree, the
violation of which could have a material adverse effect on the business, operations,
assets or financial condition of the Object Company, or (iv) result in the creation or
imposition of (or the obligation to create or impose) any Encumbrance or restriction of
any kind on any of the properties of the Object Company or the Shares. Each Transferor
has obtained the consents, approvals or authorization to enter into the Contract
required from its board of directors and/or department in charge pursuant to its
Articles of Association or by law. Conclusion of the Contract does not constitute a
breach of any agreement or law, administrative regulations, regulatory documents, rules
and approval documents by which Transferor is bound.




			
	32.6	 	All information and documents in relation to the Object Company and the Object Equity
Interest as requested by the Transferee that a Transferor has provided to Transferee prior to
the execution of the Contract are true and complete.






			
	32.7	 	All Object Company related materials and facts known or held by the Transferors, have been
disclosed to the Transferee, including materials and facts which have or may have an adverse
material effect on any Transferors’ ability of full fulfillment of their obligations under the
Contract, or if disclosed to the Transferee, have or may have an adverse material effect on
the Transferee’s willingness to execute and fulfill the Contract. Such materials and facts
provided by the Transferors to the Transferee do not contain any false or misleading
statements. Except for the Disclosed Information, no such conditions exist as affecting the
legitimacy and validity of the Equity Interest Transfer, or affecting the legal rights and
interests of the Object Company. All the copies of the





27









 









materials supplied by the Transferors during the due diligence to Transferee or any
professional agencies delegated by the Transferee shall be the authentic duplicates of
the originals and shall be true and reliable. All debts (including contingent debts)
undisclosed by the Transferors in writing shall be jointly assumed by the Transferors.




			
	32.8	 	Subject to the matters set out in the Disclosed Information, the Object Company is a validly
established legal person, validly existing and in good standing under Chinese law.






			
	32.9	 	The Object Company has a good and marketable title for all its properties and assets, real
and personal, as reflected in the Audited Balance Sheet(the “Assets”) except as set out
in the Disclosed Information, the Assets have been fully paid for and free of any
Encumbrance, pledge, mortgage or retention of title. All Assets are structurally sound with
no material defects, in good operating condition and fit for their purposes. None of the
assets is in need of maintenance or repairs except for ordinary routine maintenance and
repairs.






			
	32.10	 	The Hydropower Project has been approved by all competent governmental
authorities in China and is in full compliance of all relevant laws, regulations, regulatory
documents, rules and approval documents in China including holding all required rights to use
the Land upon which is located the Hydropower Project. The Object Company has also obtained
all the licenses, registrations, permits and approvals to operate the same, a list of which is
attached hereto as Appendix 10, all of which are valid and subsisting and in good standing
with no violations thereof.






			
	32.11	 	The Object Company and any of its officers, agents or Employees, have not committed or
omitted to do any act or thing, the commission or omission of which is in contravention of any
law or legislation and which may have a material adverse effect on the Object Company or any
of its activities.







28









 









			
	32.12	 	Neither the Object Company, the Assets, the Hydropower Project, the interests of
the Transferors in the Object Equity Interest, nor any person for whom it may be liable,
is or has been in the period from its establishment, engaged in any prosecution,
litigation, arbitration proceedings or administrative or governmental investigation or
challenge as plaintiff, defendant, Third Party or in any other capacity. There are no
such matters (including customer claims) pending or threatened in respect of which
verbal or written communication has been given or received by or against the Object
Company. There are no facts or disputes which may or might give rise to any such
matters.






			
	32.13	 	The Object Company has been in compliance with all requirements under Chinese law in respect
of environmental protection, health and safety and hereby states that it has a clean accident
history. No notices, complaints, demands or proceedings have been received by either the
Object Company or any Transferor in relation to environmental issues. There is no condition of
the real property or the land and building which would require any person of the Object
Company to decontaminate or take other remedial action in or around that real property or
building or to contribute to the costs of doing so.






			
	32.14	 	The Object Company has duly carried out all tax registrations required, filed in the
prescribed manner and within the prescribed time all tax returns required to be filed by it,
it has filed tax returns that are true, correct and complete, has made complete and accurate
disclosure in such tax returns and in all schedules, documents and other materials
accompanying such tax returns, has paid all taxes shown on such tax returns as being due and
payable and has paid all taxes payable under any assessment or reassessment which a relevant
taxing authority is entitled to collect from the Object Company. No Taxation Claims or any
deficiencies for Taxes of the Object Company have been made, claimed, proposed, or assessed in
writing or otherwise by any governmental authority with respect to the Object Company, and
there are no pending or Taxation Claims or such other threatened audits or investigations for
or relating to any liability or potential liability in the respect of Taxes of the Object
Company.







29









 









			
	32.15	 	The Object Company has provided the Transferee with a list of all policies
(including scope, duration and amount of coverage) of fire, liability, product
liability, worker’s compensation and other forms of liability and casualty insurance
currently in effect with respect to the Object Company. It has no liability (whether
contingent or otherwise) for any unpaid salary, wages, unused entitlements, long service
leave, social contributions, housing fund, (medical) insurance, taxation or other matter
in relation to the employment of any person.






			
	32.16	 	No claims have been asserted by any person to the use of intellectual property rights
including patents, trademarks, trade names, copyrights, technology, know-how or processes or
challenging or questioning the validity or effectiveness of any such license or agreement, and
there is no valid basis for any such claim. The use of any intellectual property rights by
the Object Company does not infringe on the rights of any Third Party.






			
	32.17	 	Attached hereto as Appendix 2 is a true and complete copy the audited financial statements
of the Object Company for the financial years ended on September 30, 2007 (the “Object Company
Financial Statements”).






The Object Company Financial Statements: (a) are true, correct and complete, (b) are in
accordance with the books and records of the Object Company, (c) present the
consolidated financial condition, assets and liabilities of the Object Company as of
their respective dates and the results of operation and changes in cash flows of the
Object Company for the periods covered thereby, and (d) have been prepared in
accordance with generally accepted accounting principles, consistently applied.




			
	32.18	 	Appendix 11 sets forth a true and complete list of all equipment, other personal property
and fixtures in the possession or custody of the Object Company which is leased or held under
licence or similar arrangement and of the leases, licenses, agreements, or other documentation
relating thereto.





30









 









			
	32.19	 	Other than the leases and subleases of the Object Company expressly disclosed by
the Transferors, the Object Company is not a party to or bound by any lease, sublease,
license or other instrument relating to real property and the Object Company has not
entered into any other instrument relating to real property. All interests held by the
Object Company under such leases or subleases are free and clear of any and all liens,
charges and Encumbrances of any nature and kind whatsoever.






			
	32.20	 	All leases or subleases entered into by the Object Company (which leases and subleases are
referred to in Appendix 10) are in good standing and in full force and effect without
amendment and the Object Company is entitled to the benefit of all such leases or subleases to
which the Object Company is a party.






			
	32.21	 	All amounts of rent and other amounts presently owing under the leases or subleases to which
the Object Company is a party, have been paid.






			
	32.22	 	The Object Company has complied with all of its obligations under the leases or subleases to
which it is a party, and the Object Company is not in default or breach or has received a
notice of default or breach of its obligations under such leases or subleases.






			
	32.23	 	All of the information set forth in Appendix 3 to the Contract is true and correct.






			
	32.24	 	All of the tangible assets, including but not limited to machinery, equipment, vehicles,
furniture, office equipment, computer hardware and software wherever situated and owned by
Object Company is set out in Appendix 6 are owned free and clear
of all Encumbrances.






			
	32.25	 	All material tangible assets of the Object Company used in or in connection with the
business of the Object Company (as is currently being carried out) or any part thereof are in
good condition, repair and (where applicable) proper working order, having regard to the use
and age thereof, except only for reasonable wear and tear.







31









 









			
	32.26	 	The Transferors hereby jointly confirm and assure to the Transferee that the land
for the Hydropower Project of the Object Company is obtained legally.






			
	32.27	 	The Object Company has provided the Transferee with a list of all governmental licenses,
permits, franchises, approvals and other authorizations of any governmental authority
necessary for the Object Company to own, lease and operate its properties and enable it to
carry on the business as presently conducted.






			
	32.28	 	True and complete copies of all written Material Agreements have been made available to the
Transferee prior to the date hereof in the course of the due diligence process.






			
	32.29	 	No material adverse change has occurred in any of the assets, business, financial condition,
results of operation or prospects of the Object Company or the Hydropower Project has any
other event, condition or state of facts occurred or arisen that might materially and
adversely affect, or threaten to materially and adversely affect, the Object Company, or the
business, operations or prospects of the Object Company or Hydropower Project.






			
	32.30	 	From the execution of this Contract till the Delivery Date of the Equity Interest Transfer,
the Transferors will operate and manage the Object Company and the Hydropower Project in the
ordinary course, provided that the operation, business and conditions of the Object Company
and the Hydropower Project will not have any materially adverse change compared with the
status on Base Date; and that after the execution of this Contract, Transferors shall not take
any acts that might adversely affect the Object Equity Interest, the Object Company or its
Hydropower Project.







32









 









			
	32.31	 	Term of the above representations and warranties: one (1) year from the
date of examination and acceptance or the effective date of this Contract, whichever
comes later.






			
	Article 33	 	Disclosures, Representations and Warranties by Transferee






			
	33.1	 	The Transferee is a limited liability company duly established that
validly exists and normally operates under the laws of Cayman Islands.






			
	33.2	 	The Transferee has full corporate power to execute and deliver the
Contract, to perform its respective obligations hereunder, and to consummate the
transactions contemplated hereby. All corporate acts required to be taken by the
Transferee to authorize the execution, delivery and performance of the Contract and
the consummation of the transactions contemplated hereby have been duly and properly
taken.






			
	33.3	 	The Contract has been duly executed and delivered by the Transferee
and, assuming the due execution and delivery hereof by the other parties hereto, the
Contract constitutes the legal, valid and binding obligation of the Transferee,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting the rights and remedies of creditors generally and to general principles
of equity.






			
	33.4	 	The execution, delivery and performance of this Contract by the
Transferee, and the consummation by the Transferee of the transactions contemplated
hereby will not (a) violate any provision of the charter, by laws or any other
organizational document of the Transferee, (b) violate any provision of, or constitute
a default (with or without notice or lapse of time) under, or give rise to a right of
termination, cancellation or acceleration of (or entitle any party to accelerate
whether after the giving of notice or lapse of time or both) any obligation under any
agreement, indenture, undertaking or other instrument to which the Transferee is a
party or by which it or any of its properties may be bound or affected, or (c) violate
any law, statute, ordinance, rule or regulation or any judgment, injunction, order or
decree, the violation of which could have a





33









 









materially adverse effect on the business, operations, assets or financial condition
of the Transferee.




			
	33.5	 	The Transferee undertakes that, the new income, credits and debts of
the Object Company generated outside the result of the audit and evaluation during the
period from the base date to the transfer and Delivery Date of the Equity Interest,
shall be enjoyed and borne by the Transferors.






			
	Article 34	 	Undertakings






			
	34.1	 	The Transferors hereby agrees with and undertakes to the Transferee that, subject to existing
confidentiality arrangements and such further confidentiality arrangements reasonably
acceptable to the Transferors, after the date hereof and prior to the Delivery Date, the
Object Company shall, and the Transferors shall procure the Object Company to, provide to the
Transferee and such representatives of the Transferee who are directly involved in and, at the
reasonable request of the Transferee, to potential financing sources in connection with the
transactions contemplated  hereby (the “Transferee’s Representatives”),
reasonable access to the Object Company’s offices, properties, books and records, officers,
counsel, accountants and contracts during normal business hours, in order for the Transferee
and the Transferee’s Representatives to have an opportunity to make such investigations of the
affairs of the Object Company and its business; provided, however, that any on-site
investigation shall be upon reasonable prior notice and shall not unreasonably disrupt the
personnel and operations of the Object Company.






			
	34.2	 	Subject to the terms and conditions herein provided and after the Delivery Date, each of the
Transferors and the Transferee agrees to, from time to time, whether before, at or after the
Delivery Date, use all commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated hereby and to cooperate with the other parties in connection with the foregoing,
including, without limitation, using all commercially reasonable efforts (a) to obtain all
necessary consents and approvals from other parties to material loan agreements, leases and
other contracts, (b) to obtain the consents, approvals, licenses, permits and authorizations
that are required to be obtained from any governmental authority, (c) to prevent the entry of,






34









 









or to lift or rescind, any judgments or outstanding orders, injunctions, decrees,
stipulations or awards of any nature adversely affecting the ability of the parties
to consummate the transactions contemplated hereby, (d) to effect all necessary
registrations and filings and submissions of information requested by governmental
authorities, and (e) to fulfill all conditions to the Contract.




			
	34.3	 	Subject to the terms and conditions of the Contract and until the
Delivery Date, the Object Company and the Transferors shall use all reasonable
efforts to preserve the Object Company’s business intact, to maintain the assets
business, unusual condition, results of operation or prospects of the Object Company
(including the Hydropower Project) in the same condition as on the date hereof (and
with respect to tangible assets, ordinary wear and excepted tear), to keep available
to the Object Company the services of persons employed by the Object Company and to
preserve the goodwill of customers and others having business relations with the
Object Company.






			
	34.4	 	From the date hereof up to and including [     ], the Transferors and the
Object Company shall not, directly or indirectly, (a) solicit, initiate or encourage
the submission of any inquiries, discussions or proposals or offers from any person
relating to a possible disposition of any registered capital or any material portion
of the assets of the Object Company, (b) continue, propose, solicit, initiate,
encourage or enter into negotiations or discussions relating to a possible disposition
of any registered capital or any material portion of the assets of the Object Company,
(c) enter into or consummate any agreement or understanding providing for the
disposition of any capital stock or any material portion of the assets of the Object
Company, or (d) assist, participate in or encourage any effort or attempt by any other
person to do or seek any of the foregoing. The Transferors and the Object Company
shall promptly notify the Transferee of, and communicate to the Transferee the terms
of, any such inquiry, proposal or request for information received by, or negotiations
or discussions sought with, the Object Company.






			
	Article 35	 	Indemnification






			
		 	The Transferors (the “Indemnifying Party”) hereby agrees to jointly and severally
indemnify, reimburse and hold the Transferee (including its successors and permitted
assignees) and including, after the Delivery Date, the Object Company harmless from and








35









 









against, any one or more of the following (without duplication): (a) any and all
Damages arising out of or resulting from a misrepresentation or breach of warranty of
any of the Object Company or the Transferors contained in the Contract or in any
exhibit or annex hereto, and (b) any and all Damages arising out of or resulting from
any breach of any covenant or obligation of any of the Object Company or the
Transferors contained in this Contract.



Chapter Ten Employees





			
	Article 36	 	Dismissal of Employees and Employees’ s leaving office






			
	36.1	 	All the Employees of the Object Company shall be resettled by the Transferors and the labor
contracts, employment contracts and other legal relations shall be terminated.






			
	36.2	 	All expenses arising from resettling the Employees of the Object Company by the Transferors
shall be borne by the Transferors. If the resettlement dispute between the transferors and the
Employees results in Claims against the Object Company by the Employees after the Equity
Interest Transfer is completed and the Object Company suffers losses therefrom, the Object
Company and the Transferee are entitled be fully compensated for its loss and Damages from the
Transferors.






			
	36.3	 	The Transferors agree that when they resettle the original Employees of the Object
Company, they shall not cause any adverse influence on the Object Company, the Object Equity
Interest, the management, handover and ongoing work of the Hydropower Project.






			
	36.4	 	When the original Employees of the Object Company terminate their labor relations, employment
relations or terminate their other work relations with the Object Company and leave the Object
Company, the






36









 









Transferee shall appoint a representative to participate in the outgoing employees’
job handover with the Object Company or the Transferors. The Transferors agree that
all outgoing employees will only leave their position after they complete all job
handover procedures and such handover obligations have been confirmed by the
Transferee.




			
	36.5	 	If as a result of the non-cooperation and non-coordination of the
original Employees of the Object Company in the leave-office handovers, the Object
Company or the Transferee suffers Damages therefrom, the Transferors shall fully
compensate the Transferee for its loss and Damages.






			
	Article 37	 	Recruitment of employees








			
		 	After the Equity Interest Transfer is completed, the Transferee shall employ
operational and managerial personnel for the Object Company through social
recruitment and the original Employees of the Object Company shall be given
employment priority with the Object Company upon the same conditions and terms as
such original Employees enjoyed as employees with the Object Company prior to the
Delivery Date. If the construction, production and business management requires and
the Transferee is willing to retain the original Employees of the Object Company, the
Object Company shall sign new employment contracts with the retained employees.





Chapter Eleven Confidentiality





			
	Article 38	 	Confidentiality






			
	38.1	 	Upon receipt of the Disclosed Information pursuant to the provision of
this Contract the receiving party shall:





37









 






			
	38.1.1	 	Keep the above materials and information confidential for five (5) years from
the date hereof;






			
	38.1.2	 	Except in cases when a Party needs to provide Disclosed Information to it’s
employees or advisors for the purpose of this Contract, neither Party shall disclose the
above materials and information to any Third Party.






			
	38.2	 	Article 38.1 shall not apply to the following cases;






			
	38.2.1	 	Before the disclosing party discloses the information to the receiving party, the receiving
party already knows the information or the receiving party can prove the materials and
information may be known through other legal channels.






			
	38.2.2	 	The materials and information have become public material and information not as a result of
any breach of the Contract by the receiving Party;






			
	38.2.3	 	The receiving party obtains the materials and information from the Third Party who is not
subject to any confidentiality obligations.






			
	38.2.4	 	The materials and information must be disclosed pursuant to applicable
laws and regulations.





Chapter Twelve Breach Of Contract





			
	Article 39	 	If, either the Transferors or the Transferee fail to obtain internal approval and
authorization or due to a reason attributable to one party, or this Contract is made invalid
or impossible to be fulfilled, it shall be deemed a breach of this Contract by such party. The
breaching party





38









 






shall pay the non-breaching party 1% of the Equity Interest Transfer Price as
liquidated Damages. If the non-breaching party’s economic losses suffered in
executing and fulfilling this Contract is not fully covered and remedied by the
liquidated Damages, then the breaching party shall compensate the non-breaching party
for the rest of such economic losses as stated under this Article.




			
	Article 40	 	If the Transferors, prior to the date this Contract is executed, have not disclosed all
the matters that may impact the legal existence of the Object Company and the Hydropower
Project whereby, the legal existence of the Object Company and the Hydropower Project is
impacted after the Equity Interest Transfer is completed, the Transferee is entitled to
terminate this Contract and to require the Transferors to pay one percentage ( 1 %) of the
Equity Interest Transfer Price to the Transferee as liquidated Damages.






			
	Article 41	 	If either the Transferors or the Transferee has a delay in fulfilling the contract
obligations, it shall be deemed a breach of this Contract. However, the following cases shall
not be deemed a breach of this Contract: The other party shall be the
first to fulfill its
obligations yet it has a delay fulfilling its obligations, or the other party does not
fulfill its obligations, or the other party has an obligation to give cooperation and
assistance yet does not do it, consequently the party is unable to make timely fulfillment of
the Contract obligations.






The delaying party as hereinbefore set out, shall pay the non-defaulting party
liquidated Damages based on the Purchase Price and at the rate for annual bank loan
announced by the People’s Bank of China.




			
	Article 42	 	During the period from the date of execution of the Contract to the Delivery Date, if
the Transferors commit any act that damages the assets, rights and interests of the Object
Company and the Object Equity Interest, it shall be deemed a breach of the Contract by the
Transferors. The Transferors shall be liable to compensate the Transferee or the Object
Company for any Damages arising from its breach of the Contract. The Transferee is entitled
to use its own name





39









 






or use the name of the Object Company after the Equity Interest transfer is completed
to seek compensation from the Transferors. If the Transferee discovers a breach of the
Transferors before making any payment under the Contract, the Transferee is entitled
to deduct due amount from the payment due.




			
	Article 44	 	If any party terminates or dismisses this Contract without justified reasons, or due to
reasons attributable to one party, the Contract is made invalid fully or partially, it shall
be deemed a breach of the Contract. The breaching party shall pay the non-defaulting party
one percentage (1 %) of the Purchase Price as liquidated Damages. If the non-breaching
party’s economic losses suffered in executing and fulfilling this Contract is not fully
covered and remedied by the liquidated Damages, then the breaching party shall compensate the
non-breaching party for the remainder of such economic losses.






			
	Article 44	 	If any party violates this Contract obligations, representations and warranties, it
shall be deemed a breach of this Contract and the breaching party shall compensate the other
party the losses incurred by the breach.






			
	Article 45	 	If any of the Transferors breaches this Contract, it shall be deemed that all the
Transferors collectively have breached this Contract and all the Transferors shall bear joint
liability for the breach of any single breaching party.






			
	Article 46	 	If the assets, rights and interests of the Object Company handed over by the
Transferors to the Transferee have any damage or loss compared with that confirmed by the
audit and due diligence as of the Base Date, the Transferors shall be liable to the
Transferee for such loss and damage and the Transferee is entitled to deduct such amount from
any payment payable to the Transferors.







40









 




Chapter Thirteen Force Majeure




			
	Article 47	 	Force Majeure






			
	47.1	 	“Force Majeure” refers to the special incidents or events, including  earthquake, typhoon, flood, fire, war, political unrest, etc., or events that are
deemed to be Force Majeure pursuant to relevant laws and regulations of China.






			
	47.2	 	In the event of a Force Majeure event, the obligations of the party affected by such event
and any time period binding on such affected party shall pause and be extended automatically
during the period of the Force Majeure event. The affected party shall not bear any liability
of breach of the Contract as provided therein in such situations.






			
	47.3	 	The Party claiming the occurrence of a Force Majeure event shall promptly inform the other
Party in writing within seven (7) days of the occurrence, and shall provide sufficient
evidence (notarized) of the occurrence and the continuation of the Force Majeure event. The
party shall do its best to eliminate the adverse effect of the Force Majeure event on the
fulfillment of this Contract.





Chapter Fourteen Resolution of Disputes





			
	Article 48	 	Arbitration






			
	48.1	 	If the Parties have disputes relating to the Contract, it shall first be resolved through
friendly consultation. If the dispute cannot be resolved through friendly consultation, any
Party may submit the dispute to Shanghai branch of China International Economic and Trade
Arbitration Commission (hereinafter referred to as “CIETAC”) for arbitration pursuant to the
prevailing CIETAC arbitration rules.






			
	48.2	 	The arbitration tribunal shall be constituted by three (3) arbitrators. The claimant shall
select and appoint or, the claimants shall jointly select and appoint, as the case may be, one
(1) arbitrator. Failing to perform such selection and appointment within twenty (20) days
after service of the notice for arbitration, the Chairman of CIETAC shall select and appoint
such arbitrator; and





41









 






The respondent shall select and appoint, or the respondents shall jointly select and
appoint, as the case may be, one (1) arbitrator. Failing to perform such selection
and appointment within twenty (20) days after service of the notice for arbitration,
the Chairman of CIETAC shall select and appoint such arbitrator.




Both arbitrators shall be selected and appointed, as specified above, within thirty
(30) days after receiving the notice for arbitration.




The third arbitrator shall be jointly selected and appointed by the claimant(s) and
respondent(s) and failing an agreement in respect thereof selected and appointed by
the Chairman of CIETAC upon the joint authorization of the claimant(s) and
respondent(s). In case the claimant(s) and respondent(s) fail to jointly select and
appoint the third arbitrator or fail to jointly entrust the Chairman of CIETAC to
appoint the third arbitrator within twenty (20) days from the date on which the
respondent(s) receives (or receive) the notice for arbitration, the third arbitrator
will be appointed by the Chairman of CIETAC. The third arbitrator will act as the
presiding arbitrator.




			
	48.3	 	The arbitration proceedings shall be conducted in Mandarin.






			
	Article 49	 	Validity of the Arbitration Award


The arbitration award issued by CIETAC shall be final and shall be binding on each
party. Each party to this Contract agrees to be bound by said award, and to act
pursuant to the terms of the said award.






			
	Article 50	 	Continuation of Rights and Obligations


After a dispute has occurred and during its arbitration process, other than the disputed
matter, each party to this Contract shall continue to exercise its other respective
rights under this Contract, and shall continue to implement its other respective
obligations under this Contract.





42









 





Chapter Fifteen Applicable Law





			
	Article 51	 	Applicable Law


The establishment, validity, interpretation and implementation of the Contract shall be
governed and bound by the laws and regulations of the PRC. All disputes arising out of
the Contract shall be determined pursuant to the laws of PRC. In the event the laws of
the PRC do not have provision on a certain issue relating to this Contract, a reference
shall be made to the general international business practice.





Chapter Sixteen Miscellaneous





			
	Article 52	 	Special agreement on the project under construction






			
	52.1	 	Both the Transferors and the Transferee affirm that the project under construction refers to
the part of the Wuliting hydropower project that should be constructed but has not been
completed from the date hereof to the date of examination and acceptance.






			
	52.2	 	Both the Transferors and the Transferee affirm that the total cost for the
project under construction is RMB 12,500,000; upon execution of this Contract, both the
Transferors and the Transferee shall appoint professional persons to verify the final cost
for the project under construction; if the final cost is lower than provisional cost, the
difference will be paid to the Transferors by the Transferee along with the difference in
credits and debts restructuring; if the final cost is more than the provisional cost, the
difference will be deducted upon payment of credits and debts and paid as the amount for
the project under construction. The final cost has no impact on the total cost under this
Contract.






			
	52.3	 	The Transferee agrees that Zhejiang Guangsha Hydropower Investment Co., Ltd is to complete
the project under construction specified in





43









 






Article 52.1 of the Contract; Zhengjiang Guangsha Hydropoer Investment Co., Ltd is to
complete such project within the cost range specified in Article 52.2, however if the
ultimate cost surpasses the above cost range, any additional cost will be borne by the
Transferors; if the ultimate cost is less than the cost range, any balance will belong to
the Transferors. The quality standard for the project under construction specified in
Article 52.1 is to pass the examination and acceptance of Wuliting Hydropower Project and
for the Object Company to obtain the power business permit. Consequences from failure to
meet up the standard and obtain the permit will be borne by the Transferors jointly and
severally and the Object Company or the Transferee may directly pursue the Transferors
for compensation.




			
	52.4	 	The Transferors agree that Zhejiang Guangsha Hydropower Investment Co., Ltd is to complete
construction within the time limit approved by the State. If it completes construction of
Wuliting Hydropower Project ahead of the time agreed, the Transferee shall give an appropriate
award to such company; if the construction is behind schedule due to reasons of Zhejiang
Guangsha Hydropower Investment Co., Ltd, then such company shall pay the Transferee an
appropriate penalty. The Transferors shall bear a joint and several liability for the payment
of such penalty by Zhejiang Guangsha Hydropower Investment Co., Ltd.






			
	52.5	 	The Transferee agrees that Guangsha Enterprise Investment Holding Co., Ltd is to provide a
guarantee for Zhejiang Guangsha Hydropower Co. Ltd’s completion of the project under
construction specified in Article 52.1 of the Contract.






			
	52.6	 	The Transferee agrees that Zhejiang Guangsha Hydropower Investment Co., Ltd and the
Transferee are to sign a contract for the project under construction specified in Article 52.1
of the Contract in accordance with Article 52.1 to 52.5; such matters as the progress, quality
standard, management, payment of cost and measures for award and punishment of such project
are to be specified in this contract.






			
	52.7	 	The Transferors and the Transferee agree that if extra approval or various land cost is
imposed on the construction land for the Hydropower Project of the Object Company with no
change of nature of such land, relevant fee will be borne by Guangsha Hydropower Investment
Co., Ltd; the Transferors bear a joint and several liability to the Transferee for the
fulfillment of the aforesaid obligation; the Transferee will bear the extra fee if it is
required by change in land





44









 






acquiring method from allocation method to commercial use, enabling the conversion of the
Object Company to a foreign-invested enterprise.




			
	Article 53	 	The parties agree that the quality deposit for the temperature increase of unit 2 power
generators staying within the range of the national standards when in operation for 72 hours
consecutively is 2% of the Equity Interest Transfer Price, which shall be paid to the
Transferors upon satisfaction of the said condition next day.






			
	Article 54	 	Guarantee







			
		 	Guangsha Enterprise Investment Holding Co., Ltd shall guarantee the obligations of the
Transferors under this Contract in the form attached to this Contract
as Appendix 5.






			
	Article 55	 	Waiver







			
		 	The non-exercise or delay in exercise of any right under this Contract shall not be
deemed a waiver of the said right.






			
	Article 56	 	Amendment







			
		 	An Amendment of this Contract is only effective if in writing signed by all Parties to
this Contract. Provided that, if any approval by relevant administrative departments is
required pursuant to the law of China, it shall be approved by such competent
administrative departments before such amendment becomes effective.






			
	Article 57	 	Severability







			
		 	The invalidity of any article in the Contract shall not affect the validity of the other
articles in this Contract.






			
	Article 58	 	Language





45









 






This Agreement is written in Chinese.




			
	Article 59	 	Validity of the Contract and Appendix






			
	59.1	 	The Contract shall be effective upon the seals affixed by the parties and approval by the
Examination and Approval Authority.






			
	59.2	 	All preceding contracts or documents executed by the parties in relation to the Object Equity
Interest Transfer shall be subject to this Contract if they are inconsistent with this
Contract.






			
	59.3	 	This Contract has ( ) original copies executed in Mandarin and ( ) original copies executed
in English with each party keeping one (1) copy or each version.






			
	59.4	 	The appendix of the Contract is inseparable and integral part of the Contract and shall have
equal validity as the Contract.






			
	Article 60	 	Notification






			
	60.1	 	Unless otherwise provided in the Contract, any notice or written communication sent by one
party to the other party as per the Contract, shall be written in Chinese and English and
shall be sent by a courier service. All notices shall be deemed to be received on the fifth
day after posting day (subject to the postal seal) as per the correspondence addresses
specified by the Contract. If the date of actual receipt is earlier than the said time, the
date of actual receipt shall be the date of receipt.






			
	60.2	 	All notices and correspondences shall be sent to the following
addresses unless the other party gives written notice to update such addresses.





	 	 	 	 	 
	 

	 	Transferors’ Address:
	 	166 Yugu Road, Hangzhou City
	 
	 	 	 	 
	 

	 	Telephone Number:
	 	 0571-87969988
	 
	 	 	 	 
	 

	 	Facsimile Number:
	 	 0571-87963818
	 
	 	 	 	 
	 

	 	Addressee:
	 	CHENG Gang






46









 






	 	 	 	 	 
	 

	 	Transferee’s Address:
	 	1201, Tower C2, Sunshine Plaza, 68

Anlilu, Chaoyang District, Beijing
	 
	 	 	 	 
	 

	 	Telephone Number:
	 	 010—64928483
	 
	 	 	 	 
	 

	 	Facsimile Number:
	 	 010—64961540
	 
	 	 	 	 
	 

	 	Addressee:
	 	LI Wei-wei







			
	Article 61	 	Appendix






			
	61.1	 	Appendix 1 Audit Report by September 30, 2007 by Beijing Jingdu CPA Limited






			
	61.2	 	 Appendix 2 The Information Disclosed by the Transferors






			
	61.43	 	Appendix 3 List of Original Bank Loans by September 30, 2007 audited by Beijing Jingdu
CPA Limited






			
	61.4	 	Appendix 4 Letter of Security






			
	61.5	 	Appendix 5 Assets Assessment Report by September 30, 2007 confirmed by an assets
assessment agency









47









 









			
	61.6	 	Appendix 6 Credits and Debtors Restructuring Agreements of the Object Company






			
	61.7	 	Appendix 7 Letter of Undertaking





48









 










[No more text hereinafter]




IN WITNESS WHEREOF, the duly authorized representatives of Party A, Party B and Party C have
signed this Contract on the date borne on the first page.






	 	 	 
	Party A: China Hydro electric Corporation

	 	 
	 
	 	 
	Representative’s Signature

	 	 
	 
	 	 
	Party B: Guangsha Constrution Group Co., Ltd
	 	 
	 
	 	 
	Representative’s Signature:

	 	 
	 
	 	 
	Party C: LU Chunliang

	 	 
	 
	 	 
	Representative’s Signature:
	 	 






The End















 








Appendix 1 — Audit Report

















 







Qingtian Wuliting Hydroelectric




Development Co., Ltd.




Audit Report




Sep. 30th, 2007




 









 





Contents




	 	 	 
	The audit report
	 	 
	 
	 	 
	The balance sheet
	 	1-2
	 
	 	 
	The profit and statement of profit distribution
	 	3
	 
	 	 
	Notes of financial statement
	 	4-16






 









 






	 	 	 	 	 
	

	 	
Dehao International



Beijing Jingdu Certified Public
	 	
Dehao International

Beijing Jingdu Certified Public

Accountants Co., Ltd.

Scitech Place 5th floor, Jianguomenwai
	 

	 	Accountants Co., Ltd.
	 	Avenue No.22, Beijing
	 

	 	 	 	Zip Code: 100004
	 

	 	 	 	Tel: 86-10-65264838
	 

	 	 	 	Fax: 86-10-65227521






Audit Report




(English Translation)Beijing JINGDUSHENZI (2007) No.1315



China Hydroelectric Corporation:



We have audited the enclosed financial statements of Qingtian County Wuliting Hydroelectric
Development Co., Ltd. (hereinafter referred to as “Wuliting Hydroelectric Company”), including the
balance sheet on Dec. 31st, 2006 and Sep. 30th, 2007, the profit and
financial statement of profit distribution and the notes of financial statements of 2006 and Jan.
to Sep., 2007.




I. Management Personnel’s responsibilities for financial statements



The management Personnel of Wuliting Hydroelectric Company is responsible for the preparation and
fair presentation of these financial statements in accordance with the Accounting Standards for
Business Enterprises and China Accounting System for Business Enterprises. The responsibilities
includes: (i) designing, implementing and maintaining internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due
to fraud or error;(ii) selecting and applying appropriate accounting policies; (iii) making
reasonable accounting estimates.




II. Auditor’s responsibility



Our responsibility is to express an opinion on the financial statements based on the auditing task.
We have performed the auditing task under the provision of CICPA auditing guideline. CICPA auditing
guideline requires us to comply with the professional ethics, to plan and perform audit task to
obtain reasonable assurance on whether the financial statements are free from material
misstatement.



An audit involves performing procedures to obtain audit evidence regarding the amounts and
disclosures in the financial statements. The procedures selection is depended on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements



We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.




 









 








	 	 	 	 	 
	

	 	
Dehao International



Beijing Jingdu Certified Public
	 	
Dehao International

Beijing Jingdu Certified Public

Accountants Co., Ltd.

Scitech Place 5th floor, Jianguomenwai
	 

	 	Accountants Co., Ltd.
	 	Avenue No.22, Beijing
	 

	 	 	 	Zip Code: 100004
	 

	 	 	 	Tel: 86-10-65264838
	 

	 	 	 	Fax: 86-10-65227521






III. Audit opinions



We believe that the financial statements of Wuliting Hydroelectric Company has
given a fair and true view of the financial situation of Dec. 31st,
2006 and Sep. 30th, 2007, as well as operating results of 2006 and
Jan. to Sep., 2007 in accordance with the Accounting Standards for Business
Enterprises and China Accounting System for Business Enterprises.




	 	 	 
	Beijing Jingdu Certified

	 	The Chinese Certified Public
	Public Accountants Co.,

	 	Accountant(CICPA)
	Ltd.
	 	 
	 
	 	 
	 

	 	The Chinese Certified Public
	 

	 	Accountant(CICPA)






			
	 	 	 
	Beijing China
	 	Nov. 15th, 2007






 









 






THE PROFIT AND STATEMENT OF PROFIT DISTRIBUTION




FOR THE PERIOD FROM JANUARY TO SEPTEMBER 2007




[English Translation ]




			
	 	 	 
	Prepared by: Qingtian Wuliting Hydroelectric Development Co., Ltd.
	 	In RMB Yuan






	 	 	 	 	 	 	 	 	 	 	 	 	 
	Items	 	NOTES	 	2007.01
— 2007.09	 	2006.01 — 2006.12
	Revenues from main operations
	 	 	 	 	 	 	—	 	 	 	—	 
	Less: Cost of main operations
	 	 	 	 	 	 	—	 	 	 	—	 
	Tax and levies on main operations
	 	 	 	 	 	 	—	 	 	 	—	 
	Profit
from main operations (loss is expressed in “—”)
	 	 	 	 	 	 	—	 	 	 	—	 
	Add: Profit
from other operations (loss is expressed in “—”)
	 	 	 	 	 	 	—	 	 	 	—	 
	Less: Selling expenses
	 	 	 	 	 	 	—	 	 	 	—	 
	General and administrative expenses
	 	 	 	 	 	 	—	 	 	 	—	 
	Financial expenses
	 	 	 	 	 	 	—	 	 	 	—	 
	Operating profit (loss is expressed in “—”)
	 	 	 	 	 	 	—	 	 	 	—	 
	Add: Income
from investment (loss is expressed in “—”)
	 	 	 	 	 	 	—	 	 	 	—	 
	Subsidy income
	 	 	 	 	 	 	—	 	 	 	—	 
	Non-operating income
	 	 	 	 	 	 	—	 	 	 	—	 
	Less: Non-operating expenses
	 	 	 	 	 	 	—	 	 	 	—	 
	Total Profit (loss is expressed in “—”)
	 	 	 	 	 	 	—	 	 	 	—	 
	Less: Income tax
	 	 	 	 	 	 	—	 	 	 	—	 
	 
	 	 	 	 	 	 	—	 	 	 	—	 
	Net profit (loss is expressed in “—”)
	 	 	 	 	 	 	—	 	 	 	—	 
	Add:Undistributed profit at beginning of the year
	 	 	 	 	 	 	—	 	 	 	—	 
	Other transferred-in fund
	 	 	 	 	 	 	—	 	 	 	—	 
	Distributed profit
	 	 	 	 	 	 	—	 	 	 	—	 
	Less:withdraw statutory surplus reserve
	 	 	 	 	 	 	—	 	 	 	—	 
	withdraw statutory public welfare fund
	 	 	 	 	 	 	—	 	 	 	—	 
	Undistributed profit
	 	 	 	 	 	 	—	 	 	 	—	 






	 	 	 	 	 
	Legal representative:

	 	Person in charge of accounting :
	 	Person in charge of financial function:







3











 





The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007




Notes of Financial Statements




(If there is no special explanation, the notes use yuan as monetary unit)




I. The company’s basic information




Qingtian Wuliting Hydroelectric Development Co., Ltd. (hereinafter referred to as “the company”)
was invested and established by Zhejiang Guangsha Hydroelectric Development LLC., and Zhejiang
Guangning Hydroelectric Development Co., Ltd. It registered in Qingtian County Administration for
Industry and Commerce on Dec. 21, 2001 and obtained the business license of enterprise legal
person. The registration No. is 3325221001187.



At the beginning of the establishment, the company’s registered capital was 2 million yuan. The
shareholders and the investment amount were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	Holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Hydroelectric
Development LLC.
	 	 	1,600,000.00	 	 	 	80	%
	Zhejiang Guangning Hydroelectric
Development Co., Ltd.
	 	 	400,000.00	 	 	 	20	%
	Total
	 	 	2,000,000.00	 	 	 	100	%






On Nov. 18, 2003, the company’s shareholders pari passu performed the capital increase of 28
million. After that, the amounts of investment were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	Holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Hydroelectric
Development LLC.
	 	 	24,000,000.00	 	 	 	80	%
	Zhejiang Guangning Hydroelectric
Development Co., Ltd.
	 	 	6,000,000.00	 	 	 	20	%
	Total
	 	 	30,000,000.00	 	 	 	100	%






On April 22, 2004, the company’s shareholders pari passu performed capital increase. After that,
the registered capital was 80 million yuan. The shareholders and the investment amount were as
follows:



4









 





The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007




	 	 	 	 	 	 	 	 	 
	 	 	investment	 	Holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Hydroelectric
Development LLC.
	 	 	64,000,000.00	 	 	 	80	%
	Zhejiang Guangning Hydroelectric
Development Co., Ltd.
	 	 	16,000,000.00	 	 	 	20	%
	Total
	 	 	80,000,000.00	 	 	 	100	%






According to the decision of board of shareholders on Dec. 18th, 2006, Zhejiang
Guangning Hydroelectric Development Co., Ltd. transferred its 20% interests to Lu Chunliang. Up to
Sep. 30, 2007, the registered capital was 80 million yuan, the details were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	Holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Hydroelectric
Development LLC.
	 	 	64,000,000.00	 	 	 	80	%
	Lu Chunliang
	 	 	16,000,000.00	 	 	 	20	%
	Total
	 	 	80,000,000.00	 	 	 	100	%






Registered address: Lingxia Village, Zhenbu Town, Qing Tian County



Legal representative: Lu Chunliang;



			
	Business Scope:		water resource development, generation and distribution of electrical energy;
purchase and sale of hardware and electromechanical products, chemical products and building
materials;





The company is in test operation phase. The income of test operation of this period offsets the
costs of projects under construction. The related costs occurred are included in the costs of the
project.



II. Major accounting policy and accounting estimates





	1.	 	Accounting standards and accounting systems
	 
	 	 	The company implements the Accounting Standards for Business Enterprises and Accounting Systems
of Enterprises issued by the Ministry of Finance.
	 
	2.	 	Financial year




5









 











The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007





	 	 	The financial year means a calendar year starting on January 1 and ending on December 31.
	 
	3.	 	Standard money
	 
	 	 	The standard money is Renminbi (RMB).
	 
	4.	 	Accounting base and pricing principles
	 
	 	 	The company adopts the accrual basis as accounting base, and the pricing principle is based on
the historical cost.
	 
	5.	 	Validation criteria for cash equivalent
	 
	 	 	Cash equivalent means those investments featuring short term (generally due within 3 months from
purchase date), high mobility, easy to change into cash, and low value disturbance.
	 
	6.	 	Entry method of bad debt loss for the account receivable






	 	(1)	 	Bad debt validation criteria: a. the debtor goes into liquidation or death, and his
liquidated property and heritage cannot cover the all the debts; b. the debtor fails to
perform its repayment obligations overdue and it’s obvious that the debt is unable to be
repaid.
	 
	 	(2)	 	The entry method of bad debt loss: allowance method is used for reckoning the bad debt
loss. By the end of each year, the company will draw 5% of the balance for bad debts to the
receivables (including account receivable and other receivables) after deducting the funds
of the related parties as well as the Electric Utility Bureau.






	 	 	For those accounts receivable featuring conclusive evidence of the obvious difference of
repayment, individual recognizing method is used to draw bad debt provision.
	 
	7.	 	Fixed assets pricing and depreciation method






	 	(1)	 	Validation criteria for fixed assets: the fixed assets concurrently feature the following
characteristics: 1. tangible assets; 2. high unit value; 3. service life more than one year;
4. purchased for the purposes of production, offering labour services, lease or operation
management.
	 
	 	(2)	 	The fixed assets pricing and depreciation method: the fixed asset is booked at the actual
cost of procurement, and depreciated according to straight-line method from the next month
after reaching the serviceable conditions.




6









 











The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007




The salvage value rate, depreciation life and annual depreciation rate of all kinds of fixed
assets:



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Annual
	Fixed assets group	 	salvage value rate	 	Depreciation life	 	depreciation rate (%)
	Buildings and structures
	 	 	3	%	 	 	20-30	 	 	 	3.23%–4.85	%
	General-purpose equipment
	 	 	3	%	 	 	8	 	 	 	12.13	%
	Special-purpose equipment
	 	 	3	%	 	 	20-25	 	 	 	3.88%–4.85	%
	Vehicles
	 	 	3	%	 	 	10	 	 	 	9.70	%







	(3)	 	The validation criteria and provision method for the depreciation provision of fixed
assets: by the end of each year, the company will inspect all the fixed assets. If the
following factors are found, including continual downslide of market price, technical
obsolescence, damage or long-term idling, then the recoverable amount is evaluated for the
fixed assets so as to check whether the fixed asset is devaluated or not. If the recoverable
amount is lower than the book value of the fixed assets, then the depreciation provision is
drawn as the difference between the recoverable amount and the book value.
	 
	8.	 	The accounting method for project under construction






	 	(1)	 	The project under construction adopts actual cost accounting. The Company project under
construction is divided into construction project investment, installation work investment,
equipment investment, miscellaneous investment and prepaid and deferred expenses investment.
	 
	 	 	 	For exterior product sales formed in the trial run process before reaching prearranged
serviceable condition of project under construction, its generated cost is counted into the
cost of project under construction, when it is sold or turned into commodity stocks; the
engineering cost is subtracted according to effective sales income or according to predicted
sales price.




7









 











The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007





	 	 	 	From the date of the built project reaching prearranged serviceable condition, according to
project budget, cost or project actual cost, appraisal value is turned into fixed assets. The
fixed assets depreciation is provided according to prescription of depreciation of fixed
assets provision.
	 
	 	(2)	 	The depreciation preparation for project under construction: the Company inspected the
project under construction in terminal and estimated receivable sum of various project under
construction. If there is any evidence indicating that the project under construction induced
depreciation, the provision of project under construction depreciation preparation is made
according to depreciation sum.






	9.	 	Accounting process for borrowing cost
	 
	 	 	If the Company’s generant borrowing cost can directly be classified under conforming to
capitalization condition assets, it should be capitalization and be counted into the related
assets cost. For miscellaneous borrowing cost, it should be confirmed as expense according to its
sum and be counted in the profit and loss in the current period.
	 
	10.	 	Validation criteria for revenue
	 
	 	 	The operating revenues of the company are mainly power generation revenue. The validation
criteria for revenues are as follows:






	  	 (1)	 	The major risk and remuneration of the ownership are transferred to the buyers;
	 
	 	 (2)	 	The company neither keeps the ownership-related management right, nor implements
effective control on the sold goods;
	 
	 	 (3)	 	The correlative economic benefits likely flow in the company;

	 
	 	 (4)	 	The amount of revenue can be measured reliably;






	11.	 	Accounting treatment method for income tax
	 
	 	 	The accounting treatment method of the corporate income tax is taxes payable method.





III. Major taxes




8









 








The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007




The company’s applicable taxes and tax rates are as follows:




	1.	 	Corporate income tax
	 
	 	 	The company’s applicable tax rate of income tax is 33%.
	 
	2.	 	The value added tax
	 
	 	 	Pay at 6% of the business income
	 
	3.	 	Urban construction tax
	 
	 	 	Pay at 1% of the turnover tax payable
	 
	4.	 	Education surtax
	 
	 	 	The education surtax should be paid at 3% of the turnover tax payable, 2% of the turnover tax
payable for the local education surtax.





IV. Notes on the financial statement’s main items




1. Monetary Resources




	 	 	 	 	 	 	 	 	 
	Items	 	Closing amount	 	Opening amount of the year
	Cash
	 	 	830.89	 	 	 	317.80	 
	Bank deposits
	 	 	536,481.70	 	 	 	364,495.80	 
	Total
	 	 	537,312.59	 	 	 	364,813.60	 







	2.	 	Account receivable






	 	(1)	 	Duration of account receivables is as follows:





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Opening amount of the year
	 	 	Closing amount	 	Balance at the	 	 
	 	 	Closing	 	Provision for	 	beginning of	 	Provision for
	Duration	 	balance	 	Bad Debts	 	the year	 	Bad Debts
	Within 1 year
	 	 	3,739,709.76	 	 	 	0.00	 	 	 	0.00	 	 	 	0.00	 
	Total
	 	 	3,739,709.76	 	 	 	0.00	 	 	 	0.00	 	 	 	0.00	 







	 	(2)	 	Receivables are all funds of Electricity Generating Board. As the company is in operation
test phase, the bad debt reserve has not been set up.
	 
	 	(3)	 	No receivables of related parties




9









 











The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007





	3.	 	Other receivables






	 	(1)	 	Duration of other receivables is as follows:





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Opening amount of the year
	 	 	Closing amount	 	Balance at the	 	 
	 	 	Closing	 	Provision for	 	beginning of	 	Provision for
	Duration	 	balance	 	Bad Debts	 	the year	 	Bad Debts
	Within 1 year
	 	 	286,592.50	 	 	 	0.00	 	 	 	62,213.00	 	 	 	0.00	 
	1-2 years
	 	 	 	 	 	 	0.00	 	 	 	10,000.00	 	 	 	0.00	 
	2-3 years
	 	 	10,000.00	 	 	 	0.00	 	 	 	 	 	 	 	0.00	 
	More than 3 years
	 	 	1,000.00	 	 	 	0.00	 	 	 	1,000.00	 	 	 	0.00	 
	Total
	 	 	297,592.50	 	 	 	0.00	 	 	 	73,213.00	 	 	 	0.00	 







As the company is in test operation phase, the bad debt reserve has not been set up.




The details of the ending balance are as follows:



	 	 	 	 	 	 	 	 	 
	Items	 	Amounts	 	Contents
	Zhejiang Guangsha Beichuan
Hydroelectric Development
Co., Ltd
	 	 	283,592.50	 	 	Incomings and outgoings
	Wu Feihua
	 	 	10,000.00	 	 	Office building deposit
	Dong Shilin
	 	 	1,000.00	 	 	Building site house deposit
	Zhou Jianfang
	 	 	2,000.00	 	 	Fund of disbursement
	Lu Weigang
	 	 	1,000.00	 	 	Fund of disbursement
	Total
	 	 	297,592.50	 	 	 	 	 







	4.	 	Projects under construction





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Inputs to
	 	 	Budge tamount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	the work
	 	 	(10 thousand	 	Opening amount of	 	Increase of	 	decrease of	 	 	 	 	 	funds	 	account
	project Name	 	yuan)	 	the year	 	current period	 	current period	 	Closing amount	 	Source	 	in budget
	Wuliting
Hydroelectric
project
	 	 	43117	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Self-financing	 	 	90	%
	investment of
construction
project
	 	 	 	 	 	 	127,553,091.94	 	 	 	30,264,132.13	 	 	 	0.00	 	 	 	157,817,224.07	 	 	 	 	 	 	 	 	 
	Investment of
installation
project
	 	 	 	 	 	 	35,593,617.64	 	 	 	8,191,256.79	 	 	 	0.00	 	 	 	43,784,874.43	 	 	 	 	 	 	 	 	 
	Investment of
equipment
	 	 	 	 	 	 	66,857,675.23	 	 	 	10,987,500.63	 	 	 	0.00	 	 	 	77,845,175.86	 	 	 	 	 	 	 	 	 






10









 






The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Inputs to
	 	 	Budge tamount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	the work
	 	 	(10 thousand	 	Opening amount of	 	Increase of	 	decrease of	 	 	 	 	 	funds	 	account
	project Name	 	yuan)	 	the year	 	current period	 	current period	 	Closing amount	 	Source	 	in budget
	other Investment
	 	 	 	 	 	 	7,927,867.88	 	 	 	433,975.00	 	 	 	0.00	 	 	 	8,361,842.88	 	 	 	 	 	 	 	 	 
	Investment of
deferred expenses
	 	 	 	 	 	 	150,613,136.95	 	 	 	3,837,554.60	 	 	 	0.00	 	 	 	154,450,691.55	 	 	 	 	 	 	 	 	 
	Total
	 	 	 	 	 	 	388,545,389.64	 	 	 	53,714,419.15	 	 	 	0.00	 	 	 	442,259,808.79	 	 	 	 	 	 	 	 	 
	Thereinto:
capitalized
interest
	 	 	 	 	 	 	31,936,034.88	 	 	 	23,183,037.22	 	 	 	0.00	 	 	 	55,119,072.10	 	 	 	 	 	 	 	 	 







	 	 	The company is in test operation phase. The income of test operation of this period offset the
cost of projects under construction. The related costs occurred are included in the costs of the
project.
	 
	5.	 	Taxes payable





	 	 	 	 	 	 	 	 	 
	Taxes	 	Closing amount	 	Opening amount of the year
	Value added tax
	 	 	479,752.92	 	 	 	0.00	 
	corporate income tax
	 	 	6,099,803.21	 	 	 	0.00	 
	urban construction tax
	 	 	4,797.53	 	 	 	0.00	 
	Individual income tax
	 	 	51,143.00	 	 	 	605.00	 
	Stamp tax
	 	 	1,072.28	 	 	 	0.00	 
	Total
	 	 	6,636,568.94	 	 	 	605.00	 







	6.	 	Other taxes payable





	 	 	 	 	 	 	 	 	 
	Taxes	 	Closing amount	 	Opening amount of the year
	The extra charges of
education funds
	 	 	23,987.64	 	 	 	0.00	 
	Special funds for water
conservancy construction
	 	 	7,995.88	 	 	 	0.00	 
	Total
	 	 	31,983.52	 	 	 	0.00	 







	7.	 	Other accounts payable





	 	 	 	 	 	 	 
	Items	 	Closing balance	 	Fund discription
	Zhejiang Guangsha
Hydroelectric Investment Co.,
Ltd.

	 	 	78,858,600.94	 	 	Current loan
	Guangsha Construction Group
Co., Ltd.

	 	 	4,154,862.00	 	 	Current loan
	Workers raised funds of
Guangsha Imbarking Investment
Holding Co., Ltd.

	 	 	14,125,000.00	 	 	raised funds
	Zhejiang Guangning
Hydroelectric Development Co.
Ltd.

	 	 	159,550.00	 	 	Interest payble






11









 





The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007





	 	 	 	 	 	 	 
	Items	 	Closing balance	 	Fund discription
	Jinhua Shuntai Hydroelectric
Development Co. Ltd.

	 	 	28,697,316.31	 	 	deposits

Construction costs
	Shanghai Power Transmission &
Distribution Co., Ltd.

	 	 	238,880.00	 	 	deposits
	Nanjing Nari Automatization
Control Co., Ltd.

	 	 	236,800.00	 	 	deposits
	Shanghai Fuji Electric Switch
Co., Ltd.

	 	 	194,240.00	 	 	deposits
	Shanghai Zhaoyin Electric
Power Equipment Co., Ltd.

	 	 	163,200.00	 	 	deposits
	Hangzhou Hosting Machinery
Company

	 	 	108,000.00	 	 	deposits
	Hangzhou Guorui Electric Power
Co., Ltd.

	 	 	88,560.00	 	 	deposits
	Hangzhou E-lord Electric
Technology Co., Ltd

	 	 	64,000.00	 	 	deposits
	labour security cost

	 	 	110,825.50	 	 	account payable
	Labour union outlay

	 	 	60,750.20	 	 	account payable
	Wei Xiaofei

	 	 	1,255.80	 	 	Dismissal wages payable
	forestation subsidy funds

	 	 	330,000.00	 	 	Subsidy of Qingtian
County Forestry Bureau
	industrial project growth funds

	 	 	1,835,000.00	 	 	Appropriate of
Ministry of Finance of
Qingtian County
	forestation subsidy funds

	 	 	400,000.00	 	 	Subsidy of Qingtian
County Forestry Bureau
	farmland reclamation funds

	 	 	744,944.00	 	 	finance special funds
of Qingtian County
	tax on land occupation

	 	 	827,565.00	 	 	finance special funds
of Qingtian County
	Hydrologic Station of Liandu
District, Lishui City

	 	 	12,500.00	 	 	service fee
	bounty

	 	 	20,000.00	 	 	bounty payable
	Total

	 	 	131,431,849.75	 	 	 







	8.	 	Accrued Expenses





	 	 	 	 	 	 	 	 	 
	Item	 	Closing amount	 	Opening amount of the year
	Loan interests
	 	 	627,464.00	 	 	 	0.00	 
	operation training cost of
power station
	 	 	252,000.00	 	 	 	0.00	 
	Total
	 	 	879,464.00	 	 	 	0.00	 







	9.	 	Current maturity of long-term debt




12









 





The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007










	 	 	 	 	 	 	 	 	 
	Item	 	Closing amount	 	Opening amount of the year
	Guaranteed loans
	 	 	24,000,000.00	 	 	 	6,000,000.00	 
	Total
	 	 	24,000,000.00	 	 	 	6,000,000.00	 






The guarantor of all the guaranteed loans is Guangsha Building Group Co., Ltd..




	10.	 	Long-term loans





	 	 	 	 	 	 	 	 	 
	Loan categories	 	Closing balance	 	Balance at the beginning of the year
	Guaranteed loans
	 	 	203,000,000.00	 	 	 	224,000,000.00	 
	Total
	 	 	203,000,000.00	 	 	 	224,000,000.00	 






The guarantor of all the guaranteed loans is Guangsha Building Group Co., Ltd..




	11.	 	Paid-up capital





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Opening amount of the year	 	Increase of	 	Decrease of	 	Closing amount of the year
	Investors	 	amounts	 	Proportion	 	the year	 	the year	 	amounts	 	Proportion
	Zhejiang Guangsha
Hydroelectric
Investment Co.,
Ltd.
	 	 	64,000,000.00	 	 	 	80	%	 	 	0.00	 	 	 	0.00	 	 	 	64,000,000.00	 	 	 	80	%
	Lu Chunliang
	 	 	16,000,000.00	 	 	 	20	%	 	 	0.00	 	 	 	0.00	 	 	 	16,000,000.00	 	 	 	20	%
	Total
	 	 	80,000,000.00	 	 	 	100	%	 	 	0.00	 	 	 	0.00	 	 	 	80,000,000.00	 	 	 	100	%






V. Related parties relationships and their transactions




(I) Related parties relationships





	 	1.	 	Related parties which have controlling relationships





	 	 	 	 	 	 	 	 	 	 	 
	 	 	Registered	 	 	 	Relationships with	 	Economic	 	Legal
	Enterprise	 	addresses	 	Major businesses	 	the company	 	character	 	representative
	Zhejiang Guangsha
Hydroelectric
Investment Co.,
Ltd.

	 	Liqing Road 157-1#,

Lishui City
	 	Water resource
development, etc.
	 	Majority

shareholders
	 	Limited liability
	 	Lu Chunliang







	 	2.	 	The registered capital and its changes by related parties which have controling
relationships




13









 





The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007









	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Opening amount of	 	Increase of	 	Decrease of	 	 
	Related parties’ name	 	the year	 	current period	 	current period	 	Closing amount
	Zhejiang Guangning
Hydroelectric
Development Co.,
Ltd.
	 	 	180,000,000.00	 	 	 	—	 	 	 	—	 	 	 	180,000,000.00	 







	3.	 	The stocks held by related parties which have controlling relationships and the changes





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	The amount of shareholding	 	Holding proportion
	 	 	Opening amount of	 	 	 	 	 	Opening amount of	 	 
	Related parties’ name	 	the year	 	Closing amount	 	the year	 	Closing amount
	Zhejiang Guangsha
Hydroelectric
Investment Co., Ltd.
	 	 	64,000,000.00	 	 	 	64,000,000.00	 	 	 	80	%	 	 	80	%







	4.	 	Related parties which have other relationships with the company





	 	 	 
	Related parties’ name	 	relationship
	Lu Chunliang

	 	Shareholder of the company
	Guangsha Building Group Co., Ltd.
	 	The same ultimate controller
	Zhejiang Guangsha Beichuan Hydroelectric 

Development Co. Ltd.
	 	The same ultimate controller






(II) Related transaction





	 	1.	 	Up to Sep. 30th, 2007, Zhejiang Guangsha Hydroelectric Development Co.,
Ltd. shoud be paid 78,934,340.94 yuan from other payables, of which accumulated amount of
7,635,493.68 yuan should be paid as payment for the use of state funds.
	 
	 	2.	 	From Jan., 2007 to Sep., 2007, management fees of 196,579.74 yuan should be paid to
Zhejiang Guangsha Hydroelectric Investment Co., Ltd., of which 74,773.90 yuan has been
paid, the residual payment of 59,819.12 yuan has not been paid.
	 
	 	3.	 	Acceptance of guarantee
	 
	 	 	 	The guarantor is Guangsha Building Group Co., Ltd.. Up to Sep. 30, 2007, the guarantee amount
accepted is 227 million yuan.





(III) Balance of related parties




14









 





The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007






	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Opening amount of
	Related parties’ name	 	Categories	 	Closing amount	 	the year
	Zhejiang Guangsha
Beichuan
Hydroelectric
Development Co.,
Ltd.
	 	Other payables	 	 	283,592.50	 	 	 	22,211.00	 
	Zhejiang Guangsha
Hydroelectric
Investment Co., Ltd.
	 	Other payables	 	 	78,858,600.94	 	 	 	37,091,283.12	 
	Guangsha Building
Group Co., Ltd.
	 	Other payables	 	 	4,154,862.00	 	 	 	4,154,862.00	 






VI. Commitment matters




Up to the deadline of the report, we do not have commitment matters which should be disclosed.



VII. Contingencies




Up to the deadline of the report, we do not have contingencies which should be disclosed such as
pending action, external guarantee, etc..



VIII. Other important matters





	1.	 	Up to the deadline of the report, China Hydroelectric Fund Beijing Management Company plans
to purchase all the equity of the company. The correlative work is ongoing. Other than this,
we do not need to explain other important matters.
	 
	2.	 	According to the Development Project Agreement signed on Nov. 7th, 2001 between the People’s
Government of Lishui City and Guangsha Building Group Co., Ltd., within 5 years from the
issuing day of the acceptance check expertise report of the first unit of power station, the
government’s net income part of corporate income taxes, water resource costs and hydropower
station management costs of the company should be given full allowance for the first 3 years
and 50% allowance for the last 2 years. The allowance of the year will be paid before March of
the next year to Guangsha Building Group Co., Ltd..





IX. The subsequent events of the balance sheet




On Nov. 17, 2007, Zhejiang Guangsha Hydroelectric Investment Co., Ltd. , Guangsha Building Group
Co., Ltd. and Lu Chunliang signed the share transfer agreement. Zhejiang Guangsha Hydroelectric
Investment Co., Ltd. transferred its 20% equity to Guangsha Building Group Co., Ltd., and 60%
equity to Lu



15









 






The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30th, 2007




Chunliang. After that, the shareholders and the investment amount are as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	Holding
	shareholder	 	amount	 	proportion
	Lu Chunliang
	 	 	64,000,000.00	 	 	 	80	%
	Guangsha Building Group Co., Ltd.
	 	 	16,000,000.00	 	 	 	20	%
	Total
	 	 	80,000,000.00	 	 	 	100	%





Qingtian Wuliting Hydroelectric Development Co., Ltd.



          Nov. 15th, 2007





16











 





Appendix 2 Index to information disclosed by the Transferors




Including but not limited to:



Company profile



Annual Inspection records



Project Development Agreement



Application for the establishment of the company



Capital verification report, Qing Hui Yan (2001) NO.148



Resolutions of shareholders’ meeting, amendments to Articles of Association and shareholders’ list



Capital verification report, Zhong Hui Suo Yan (2003) No.17



House Lease Agreements and proof



Resolutions of shareholders’ meeting, capital increase agreements, amendments to Articles of
Association and shareholders’ list



Capital verification report, Zhong Hui Suo Yan (2003) No.16



Resolutions of the shareholders’ meeting, amendments to Articles of Association



Enterprise Legal Person Business License



Capital verification for the year of 2001



List of key personnel



Articles of Association



Resolutions of the shareholders’ meeting



Tax Registration Certificate



Tax Registration Certificate(copy)



Organization or agency code (copy)



Account opening permit, No.3310-01837533



Zhejiang government, Approval on the Comprehensive Plan for Qiantangjiang Drainage Area, Zhe
Zheng Fa [2000] No.23



Zhejiang Power Supply Company, Opinion on the Launch of Qingtian Wuliting Water Resources
Project, Zhe Dian Nong [2003] No.291



Zhejiang Development and Planning Commission, Notice of Initiation of the Project, [2003] No.64



Zhejiang Development and Planning Commission, Apply on the Feasibility Study Report of Lishui
Wuliting Key Water Project (Hydropower Project), Zhe Ji Ji Chu [2003] No.833



Zhejiang Water Resources Bureau, Approval on the Water and Soil Conservancy Plan for Wuliting Key
Water Project, Zhe Shui Zheng [2003] No.70



Zhejiang Water Resources Bureau, Approval on the Water Resources Study of Wuliting Key Water
Project, Zhe Shui Zheng [2003] No.84



Zhejiang Environmental Protection Bureau, Approval on the Review Opinion on Environmental Impact
of Lishui Wuliting Key Water Project, Zheng Huan Jian (2003) No.154



Application for Assessing Dangers of Geological Disasters and the Assessment Report



Zhejiang Water Resources Bureau, Pr-application for Water Procurement, Yu Shen [2003] No.003



Zhejiang Communications Bureau, Approval on Navigation Standards of Qingtian Wuliting Key Water
Project, Zhe Jiao Hang Zheng [2004] No.01




1









 







Zhejiang Development and Reform Commission, Apply on the Preliminary Design of Lishui Wuliting
Key Water Project (Hydropower), Zhe Fa Gai She Ji (2004) No.130



Principle Agreement on Grid Connection of Qingtian Wuliting Hydropower Project



Economic Agreement on Grid Connection 2006020



Audit Report, Zhong Hui Suo Shen (2005) 18



Audit Report, Zhong Hui Suo Shen (2006) 25



Audit Report, Zhong Hui Suo Shen (2007) 4



Balance Sheet



Loan Card



Circular on Financing Work, Zhejiang Guangsha Hydropower Development Co., Ltd



Bank Statement



Breakdown of other payables



Breakdown of other receivables



Project Development Agreement for Zhejiang Lishui Wuliting Hydropower Project



Principle Agreement on Grid Connection and Economic Agreement on Grid Connection of Qingtian
Wuliting Hydropower Project



Economic Agreement on Grid Connection



House Lease Contract



Loan Contract



Loan Contract



Loan Contract



Loan Contract



Guarantee Contract



Loan Contract



Loan Contract



Guarantee Contract



Loan Contract



Guarantee Contract



Loan Contract



Guarantee Contract



Loan Contract



Guarantee Contract



Loan Contract



Guarantee Contract



Breakdown of insurance for construction projects



Bid-inviting contract for construction projects



Bidding documents, tendering documents and bid-winning notice



Project Survey and Design Contract



Contract and bid-winning notice regarding hydraulic power generators and their attached equipment



Bid-inviting documents, tendering documents, bid-winning notice and agreement for metal structure
manufacturing and installation



Contract for Low Voltage Cabinets



Contract for Designing and Manufacturing Common Enclosure Bus




2









 







Contract for 110KV WLT/JD-03



Contract for designing, manufacturing and supplying 6KV set-in switch cabnets



Agreement for installing mechanical equipment



Value-added Tax Statement



Comprehensive Application for Local Tax (Charge)





3











 






     Appendix 3



Bank Loans of Wuliting




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	Ending
on Sep. 30, 2007	 	Unit: RMB	 
	 	 	 	 	Borrowing	 	 	 	 	 	Annual	 	 	 	 	 	 	 	 	 
	No.	 	Lending Bank or agency	 	Date	 	Expiry Date	 	Rate	 	Currency	 	Amount	 	Guarantor	 	 	 
	1  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2007.11.15	 	 	 	6.912	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid on Oct. 22, 2007	 
	2  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.30	 	 	 	2008.2.15	 	 	 	7.020	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	2  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2008.5.15	 	 	 	7.020	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	2  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2008.8.15	 	 	 	7.020	 	 	RMB
	 	 	5,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	2  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2008.11.15	 	 	 	7.020	 	 	RMB
	 	 	4,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	3  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2009.2.15	 	 	 	7.020	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	3  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2009.5.15	 	 	 	7.020	 	 	RMB
	 	 	9,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	3  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2009.8.15	 	 	 	7.020	 	 	RMB
	 	 	12,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	3  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2009.11.15	 	 	 	7.020	 	 	RMB
	 	 	5,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	4  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2010.2.15	 	 	 	7.344	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	4  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2010.5.15	 	 	 	7.344	 	 	RMB
	 	 	9,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	4  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2010.8.15	 	 	 	7.344	 	 	RMB
	 	 	15,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	4  

	 	Agricultural Bank of China, Qingtian County Sub-branch
	 	 	2004.11.29	 	 	 	2010.11.15	 	 	 	7.344	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd	 	 	 
	5  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2010.11.15	 	 	 	7.344	 	 	RMB
	 	 	4,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	5  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2011.2.15	 	 	 	7.344	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	5  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2011.5.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	5  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2011.8.15	 	 	 	7.344	 	 	RMB
	 	 	15,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	6  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2011.11.15	 	 	 	7.344	 	 	RMB
	 	 	7,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	6  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2012.2.15	 	 	 	7.344	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	6  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.1.20	 	 	 	2012.5.15	 	 	 	7.344	 	 	RMB
	 	 	8,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	7  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.4.27	 	 	 	2012.11.10	 	 	 	7.344	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	7  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.4.27	 	 	 	2012.5.10	 	 	 	7.344	 	 	RMB
	 	 	2,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	7  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.4.27	 	 	 	2012.8.10	 	 	 	7.344	 	 	RMB
	 	 	15,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	8  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.7.19	 	 	 	2008.8.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	8  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.7.19	 	 	 	2013.5.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	8  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.7.19	 	 	 	2013.8.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	8  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2005.7.19	 	 	 	2013.11.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	9  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2006.1.5	 	 	 	2014.2.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	9  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2006.1.5	 	 	 	2014.5.15	 	 	 	7.344	 	 	RMB
	 	 	10,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	10  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2006.10.23	 	 	 	2013.2.15	 	 	 	8.208	 	 	RMB
	 	 	3,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	10  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2006.10.23	 	 	 	2014.11.15	 	 	 	8.208	 	 	RMB
	 	 	8,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	10  

	 	Agricutural Bank of China, Mingzhu Sub-branch
	 	 	2006.10.23	 	 	 	2014.8.15	 	 	 	8.208	 	 	RMB
	 	 	9,000,000.00	 	 	Guangsha Construction Group Co., Ltd
	 	Repaid to the city branch upon grant of the loan	 
	 

	 	Total

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	227,000,000.00	 	 	 	 	 	 






 









 






     Appendix 4



Letter Of Guarantee




China Hydroelectric Corporation:




We hereby issue this Letter to you to provide a joint liability guarantee for all contractual
obligations and maters under the “Formal Equity Interest Transfer Contract of Qingtian Wuliting
Hydropower Development Co., Ltd” signed by CHC, Zhejiang Guangsha Construction Group Co., Ltd, and
Zhejiang Guangsha Hydropower Investment Co., Ltd (hereinafter collectively referred to as “the
Transferee”)on ______________, 2007.



1. Guarantee Scope




The Guarantee’s scope is all contractual obligations and matters under the “Formal Equity Interest
Transfer Contract of Qingtian Wuliting Hydropower Development Co., Ltd,” and all payment
obligations, liabilities for breach of contracts and compensation caused by the Transferee’s
failure to perform any contractual obligations thereof.



2. Guarantee Term




It shall be two years from the expiration date of the performance of the contractual obligations
and matters under the “Formal Equity Interest Transfer Contract of Qingtian Wuliting Hydropower
Development Co., Ltd.”



3. Guarantee manner: Joint liability guarantee




4. Performance of the Guarantee obligations




If the Transferee fails to perform its contractual obligations and matters in accordance with the
provisions of the Contract, CHC is entitled to request us to bear liability under the guarantee. We
shall fulfill our obligations set out in this letter, within two (2) work days of receipt of your
written notice affixed with your company seal, setting out our relevant contractual obligations, we
will honor our payment obligations, our liability for breach of contractual provisions and remit
the



 









 





appropriate compensation.



5. Effective Date




This letter shall come into effect on the date when the legal representative or authorized
representative signs and affixes our official business seal.



Guarantor:
 



Signature of legal representative or authorized

representative (signed and Sealed)




          
______________, 2007





 











 





Qingtian Wuliting




Hydropower Development Co., Ltd.




Share Transfer Project




Assets Appraisal Report




JINGDUPINGBAOZI (2007) No.***




One volume only




Beijing Jingdu Assets Valuation Co., Ltd.




November 15, 2007




 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




Contents




	 	 	 	 	 	 	 
	I. Entrusting Party and Other Appraisal Report Users	 	 	5	 
	 
	 	 	 	 	 	 
	II. Basic Information and Financial Status of the Appraised Enterprise	 	 	5	 
	 
	 	 	 	 	 	 
	III
	 	Appraisal Objectives	 	 	13	 
	 
	 	 	 	 	 	 
	IV
	 	Appraisal Subject	 	 	13	 
	 
	 	 	 	 	 	 
	V
	 	Value Type and Definition	 	 	14	 
	 
	 	 	 	 	 	 
	VI
	 	Appraisal Base Day	 	 	15	 
	 
	 	 	 	 	 	 
	VII
	 	Appraisal Assumptions and Restrictive Conditions	 	 	15	 
	 
	 	 	 	 	 	 
	VIII
	 	Appraisal Principle	 	 	16	 
	 
	 	 	 	 	 	 
	IX
	 	Appraisal Basis	 	 	16	 
	 
	 	 	 	 	 	 
	X
	 	Appraisal Method	 	 	18	 
	 
	 	 	 	 	 	 
	XI Implementation Process and Conditions of Appraisal Procedures	 	 	29	 
	 
	 	 	 	 	 	 
	XII
	 	Appraisal Conclusions	 	 	30	 
	 
	 	 	 	 	 	 
	XIII Explanations to Particular Issues	 	 	32	 
	 
	 	 	 	 	 	 
	XIV Major Issues after Appraisal Base Day	 	 	33	 
	 
	 	 	 	 	 	 
	XV
	 	Legal Effect of the Appraisal Report	 	 	34	 
	 
	 	 	 	 	 	 
	XVI
	 	Appraisal Reporting Day	 	 	34	 
	 
	 	 	 	 	 	 
	Document for Future Reference	 	 	36	 
	 
	 	 	 	 	 	 
	Statement on the Application Scope of Document for Future
Reference of the Assets Appraisal
Report	 	 	37	 






Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     1




 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report






Share
Transfer Project by Qingtian Wuliting




Hydropower Development Co., Ltd.

Abstract




JINGDUPINGBAOZI (2007) No.***



Beijing Jingdu Assets Valuation Co., Ltd. (hereinafter referred to as Jingdu Company) has been
entrusted by China Hydroelectric Corporation and developed appraisal work for all shareholders’
equity value of Qingtian Wuliting Hydropower Development Co., Ltd. (hereinafter referred to as
“Wuliting Hydroelectric Development Company) on the appraisal base day.



Appraisal objectives: Because China Hydroelectric Corporation planed to purchase all stock rights
of Wuliting Hydropower Development Company, the Jingdu Company accepted its entrustment and
developed value appraisal for all shareholders’ equity of Wuliting Hydropower Development Company
on the appraisal base day and supplied references for the aforementioned economic behavior.




The appraisal base day is September 30, 2007.



Appraisal Subject is all shareholders’ equity of Wuliting Hydropower Development Company. The net
assets nominal value of the Wuliting Hydropower Development Company on appraisal base day is RMB 80
Million.



Appraisal method: Income approach.



Value type: the value type of the appraisal is investment value. The investment value is the assets
possessed value for special investors with investment objective or certain of investors.



Referring to relevant data provided by the appraised enterprise, the appraisers have carried out
necessary appraisal procedures including the verification, inquiry


Beijing
Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     2



 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




and data collection for property right, obligation and operation status, the investigation,
analyses and judgment for the market environment and state of operation, financial status, and
future development status for appraised enterprise according to national provisions concerning
assets appraisal, at the same time complying with principles of independence, objectivity and
impartial. Also, according to the effective price data on the appraisal base day, the fair value of
the entrusted assets on the appraisal base day has been reflected objectively.



Till September 30, 2007, the appraisal base day expiration, through adopting income approach
appraisal, the entity value appraisal value of Wuliting Hydropower Development Company is RMB
419.5352 Million and all shareholders’ equity appraisal value is RMB 182.5352 Million, under the
condition of continual operation.



Appraisal conclusions are drawn on some assumptions and restrictive conditions, so it is hereby
noted that the report user shall pay attention to the legal ownership explanation of the entrusted
assets as well as influences on appraisal conclusions and trade pricing generated by these
assumptions and restrictions.



This appraisal report will be valid for one year, namely, from Sept. 30, 2007 to Sept. 29, 2008.



The aforesaid content is picked from the asset appraisal report. To learn the comprehensive
information of the appraisal report, please earnestly read the full text of this asset appraisal
report. If any questions, take the Chinese version as criterion.



The use right of the appraisal report belongs to entrusting party. Without the permission of the
entrusting party, the organization can’t supply or publicize the report. For any miscellaneous
purposes, or somebody else presented and mastered the report, the appraisal organization will
neither admit nonrecognize nor take on any responsibility, without the written approval of Jingdu.




Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     3



 









 






Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report





(No text in this passage)




     Assets Appraisal Institution: Beijing Jing Du Assets Valuation Company Ltd.



     Legal Representative of Assets Appraisal Institution: Jiang Jianying



     China Certified Public Valuer: Wang Ri



     China Certified Public Valuer: Sun Chaohui



     Nov. 15, 2007



Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     4



 









 




 Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




Qingtian Wuliting Hydropower Development Co., Ltd.




Share Transfer Project




Assets Appraisal Report




JINGDUPINGBAOZI (2007) No.***



Beijing Jingdu Assets Valuation Co., Ltd. (hereinafter referred to as Jingdu Company) has been
entrusted by China Hydroelectric Corporation and developed appraisal work for all shareholders’
equity value of Qingtian Wuliting Hydropower Development Co., Ltd. (hereinafter referred to as
“Wuliting Hydroelectric Development Company) on the appraisal base day, according to relevant
provisions on assets appraisal and guided by the principle of independence, impersonality, fairness
and scientificness. The appraisers of Jingdu Company verified, inquired and collected data of the
property right, obligation and operation status for entrusted assets according to necessary
appraisal procedures. The market environment of the appraised enterprise is investigated. The
investigation, analyses and judgement are carried out for the state of operation, financial status
and forthcoming development of the appraised enterprise. The fair value of the entrusted assets on
September 30, 2007 has been reflected objectively. The assets appraisal conditions and results are
reported as follows:




I. Entrusting Party and Other Appraisal Report Users



The entrusting party of the appraisal project is China Hydroelectric Corporation. The China
Hydroelectric Corporation planed to purchase all stock rights of Wuliting Hydropower Development
Company. Except the entrusting party, the proceeding involved related parties will use the report.




II. Basic Information and Financial Status of the Appraised Enterprise



The appraised enterprise of the project is Wuliting Hydropower Development


Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     5



 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




Company.





	 	1.	 	Company name:  Qingtian Wuliting Hydropower Development Co., Ltd. (hereinafter referred to
as “Wuliting Hydroelectric Development Company)








	 	 	 	Registered address: Lingxia Village, Zhenbu Town, Qing Tian
County

Legal Representative: Lu Chunliang

Registered Capital: RMB 80m

Paid-up Capital: RMB 80m
	 
	 	 	 	Company Type: Company with Limited Liability
	 
	 	 	 	Business Scope:  Hydropower, power sale, hardware electromechanical (exclusive of cars),
chemical product (exclusive of chemical dangerous articles), building
material sale.

	 
	 	 	 	Establishment Date: Dec. 21, 2001

Operation Period: from Dec. 21, 2001 to Dec. 21, 2021
	 
	 	2.	 	History evolution



	 
	 		 	Wuliting Hydropower Development Company was established and invested by Zhejiang Guangsha
Hydropower Development Co., Ltd. and Zhejiang Guang Ning Hydropower Development Co., Ltd. on
December 18, 2001. Its registered capital is RMB 2 Million. Here, Zhejiang Guangsha Hydropower
Development Co., Ltd. invested RMB 1.6 Million (occupies 80% of the registered capital) and
Zhejiang Guang Ning Hydropower Development Co., Ltd. invested RMB 0.4 Million (occupies 20% of
the registered capital).The registered capital of Wuliting Hydropower Development Company was
increased to RMB 30 Million on November 18, 2003 from the initial registered capital RMB 2
Million. After capital increase, the contributed capital of Zhejiang Guangsha Hydropower
Development Co., Ltd. is RMB 24 Million (occupies 80% of the registered capital) and the
contributed capital of Zhejiang Guang Ning Hydropower Development Co., Ltd. is RMB 6 Million
(occupies 20% of the registered capital). The registered capital of Wuliting Hydropower
Development Company was increased to RMB 80 Million on April 22, 2004 from the registered
capital RMB 30 Million. After capital increase, the





Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     6



 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




	 	 	 	contributed capital of Zhejiang Guangsha
Hydropower Development Co., Ltd.
is RMB 64 Million (occupies 80% of the registered capital) and the contributed capital of
Zhenjiang Guang Ning Hydropower Development Co., Ltd. is RMB 16 Million (occupies 20% of the
registered capital).
	 
	 	 	 	The prime assets of the Company are Wuliting Hydropower Station. Wuliting Hydropower Station
located in Qingtian County, Lishui City, Southwest of Zhejiang Province. It located in the
Oujiang River main stream Lishui section. The dam site is located in the large brook near
Wuliting Village downstream of Oujiang River main stream midstream. It is 29km to the Lishui
urban area and about 45km to the Qing Tian County. The right and left banks passed No. 330
national highway, Lishui-Wenzhou Expressway (under construction) and Jinhua-Wenzhou Railway
respectively. The traffic is convenient.
	 
	 	 	 	Wuliting hydropower station project is low head and large discharge power station in river
channel. The normal pool level is 36.5m. The reservoir capacity under normal pool level is
24,240,000 m3. The installed plant capacity is three sets×14MW. The average annual power
output is 121,350,000 kW h. The shipping flow condition of the shipping channel is 300t and it
belongs to Class III project. The hydropower station assets include: the main construction are
flood diversion sluice, power station in river channel main workshops and upstream water
retaining part buildings, shipping flow buildings (the upper and lower channel of the shipping
channel and chamber), both banks junction buildings; the water retaining part of ht power
station’s upstream and downstream, auxiliary workshops and voltage ascending station. The
secondary building possesses slope protection (bank), navigation and docking structures. The
main equipment collocated in the power station includes: water-turbine generator sets and
related self-contained complete set of equipment and voltage ascending facility. The
accessory machinery collocated in the power station includes: hoisting and machine repair
facility and technology water supply system, drainage system, compressed-air system, and oil
system as well as hydropower measurement system.




Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     7



 









 




Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report





	 	 	 	The valley comprehensive planning was finished in February, 2000. On
November 7, 2001, Zhejiang Guangsha Construction Group Co., Ltd. signed “Agreement on Zhejiang
Lishui Wuliting Hydropower Station Project Development” with Zhejiang Lishui People’s
Government. The “Opinion on Qing Tian Wuliting Hydro-junction Project Establishment” was
obtained on April 3, 2003. The “Endorsement on Lishui Wuliting Hydro-junction Project
(hydropower station) feasibility study report” was obtained on October 22, 2003. The
“Endorsement on Lishui Wuliting Hydro-junction Project (hydropower station) Preliminary
Design” was obtained on October 22, 2003. The project was started from October, 2004. The
total project duration is about 3.5 years. At present, the main works has been basically
finished. The little civil works and installation work haven’t been finished yet. Part
temporary works haven’t been dismantled yet. The channel cleanout project, bridge
rehabilitation works and roadbed reinforcement projects haven’t been completed yet. The No. 1
and 2 water-turbine generator sets of the facility have been in trial run. The No. 3
water-turbine generator set has not been installed.
	 
	 	 	 	Wuliting Hydropower Development Company signed “Parallel in economic agreement” with Lishui
Power Industry Bureau in January, 2007. The peak power price to internet is RMB 0.535 per kWh.
And the valley power price is RMB 0.268 per kWh.
	 
	 	3.	 	The assets, liabilities, financial status and operation achievements in recent
three years





	 	 	 
	Assets liabilities and financial status

	 	unit: RMB 10 thousand






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Item	 	2004	 	2005	 	2006	 	Sep. 30, 2007
	Total assets
	 	 	17,007.61	 	 	 	28,471.23	 	 	 	38,898.34	 	 	 	44,683.44	 
	Liabilities
	 	 	9,007.61	 	 	 	20,471.23	 	 	 	30,898.34	 	 	 	36,683.44	 
	Net assets
	 	 	8,000.00	 	 	 	8,000.00	 	 	 	8,000.00	 	 	 	8,000.00	 






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Wuliting Hydropower Development Company didn’t work any more during the Wuliting Hydropower
Station construction stage from 2004- 2006. Wuliting
Hydropower Development Company was carried out annual audit in 2004, 2005 and 2006 by Zhejiang
Suichang Public League CPAs Firm , which issued unqualified opinion on their audit reports as
ZHONGKUAISUOSHEN [2005]No. 18, ZHONGKUAISUOSHEN[2006] No. 25 and ZHONGKUAISUOSHEN [2007]No. 4
respectively. The audit report considered that the company finacial statements conformed to the
prescription of Accounting Standard for Business Enterprises and Accounting System of the Small
enterprises. It reflected the financial status, operation achievement and the fund variation in
the important aspects. The accounting process selection complies with principle of consistency.
Beijing Jing Du CPAs Firm carried out special audit for balance sheet of the Wuliting
Hydropower Development Company on Sep. 30, 2007 and presented the audit report
BEIJINGJINGDUSHENZI ( 2007) No. 1315 .




	 	4.	 	Major accounting policies
	 
	 	4.1	 	Financial system
	 
	 	 	 	Accounting Standards for Business Enterprises and Accounting Systems of Enterprises issued by
the Ministry of Finance of Wuliting Hydropower Development Company.
	 
	 	4.2	 	Financial year
	 
	 	 	 	The financial year means a calendar year starting on January 1 and ending on December 31.
	 
	 	4.3	 	Standard money
	 
	 	 	 	The standard money is Renminbi (RMB).
	 
	 	4.4.	 	Accounting base and pricing principles
	 
	 	 	 	The company adopts the accrual basis as accounting base, and its pricing principle is based on
the historical cost.
	 
	 	4.5	 	Validation criteria for cash equivalent




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	 	 	 	Cash equivalent means those investments featuring short term (generally due within 3 months
from purchase date), high mobility, easy to change into cash,
and low value disturbance.
	 
	 	4.6	 	Entry method of bad debt loss for the account receivable






	 	(1)	 	Bad debt validation criteria: a. the debtor goes into liquidation or is death, and
his liquidated property and heritage cannot cover the all the debts; b. the debtor fails
to perform its repayment obligations overdue and it’s obvious to indicate that the debt
is unable to be repaid.
	 
	 	(2)	 	The entry method of bad debt loss: allowance method is used for reckoning the bad
debt loss. By the end of each year, the company will draw 5% of the balance for bad debts
to the receivables (including account receivable and other receivables) after deducting
the incoming and outgoing and funds of disbursement of the related parties.






	 	 	 	For those accounts receivable featuring conclusive evidence of the obvious difference of
repayment, individual recognizing method is used to draw bad debt provision.






	 	4.7.	 	Fixed assets pricing and depreciation method






	 	(1)	 	Validation criteria for fixed assets: the fixed assets concurrently feature the
following characteristics: 1. tangible assets; 2. high unit value; 3. service life is
more than one year; 4. purchased for the purposes of production, offering labor services,
lease or operation management.
	 
	 	(2)	 	The fixed assets pricing and depreciation method: the fixed asset is booked at the
actual cost of procurement, and depreciated according to straight-line method from the
next month after reaching the serviceable conditions.
	 
	 	 	 	The salvage value rate, depreciation life and annual depreciation rate of all kinds of
fixed assets:





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	 	 	 	 	 	 	 	 	 	 	Annual depreciation
	Fixed assets group	 	Salvage value rate	 	Depreciation life	 	rate (%)
	Buildings and structures
	 	 	3	%	 	 	20-30	 	 	 	3.23%-4.85	%
	General-purpose
equipment
	 	 	3	%	 	 	8	 	 	 	12.13	%
	Special-purpose equipment
	 	 	3	%	 	 	20-25	 	 	 	3.88%-4.85	%
	Vehicles
	 	 	3	%	 	 	10	 	 	 	9.70	%







	 	(3)	 	The validation criteria and provision method for the depreciation provision of
fixed assets: Because the market price fell continuously, technical obsolescence,
spoilage and long-term idle, the receivable sum is lower than its book value fixed
assets. The provision depreciation preparation is made according to difference of
single item fixed assets receivable sum lower than its book value.






	 	4.8	 	The accounting method for project under construction






	 	(1)	 	The project under construction adopts actual cost for accounting. The project under
construction is divided into construction project investment, installation engineering
investment, equipment investment, miscellaneous investment and deferred expense
investment.
	 
	 	 	 	For the sale products formed in the trial running process before reaching preset service
condition of project under construction, its cost is counted in the cost of project
under construction; when it is sold or turned into commodity inventory; the engineering
cost is subtracted according to actual sales income or according to predicted sales
price.
	 
	 	 	 	From the date when the project reaches predicted service conditions, according to
project budget, cost or project actual cost, the appraisal value is turned into the
fixed assets. The fixed assets depreciation provision is provided according to the
relevant depreciation methods.
	 
	 	(2)	 	The depreciation provision for project under construction: the Company will inspect
the project under construction by the end of the construction and estimate the receivable
sum of various items. If there is any evidence 





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	 	 	 	indicates that the project under
construction is devalued, the depreciation provision of project under construction is
made according to the depreciation amount.






	 	4.9	 	Accounting treatment method for borrowing cost

	 
	 		 	For the borrowing cost occurred, if it compliant to the capitalization conditions of fixed
assets construction or procurement, it can be added into the corresponding assets costs; the
other borrowing costs shall be determined as expenses and listed in the income statement
according to the amount occurred.






	 	4.10	 	Validation criteria for revenue
	 
	 	 	 	The operating revenues of the company mainly cover power generation revenue. The validation
criteria for revenue as follows:







	 	(1)	 	The major risk and remuneration of the ownership are transferred to the buyers;
	 
	 	(2)	 	The company neither keeps the ownership-related management right, nor implements
effective control to the sold goods;
	 
	 	(3)	 	The amount of revenue can be measured reliably;
	 
	 	(4)	 	The correlative economic benefits likely flow in the company;
	 
	 	(5)	 	The related cost occurred or to be occurred can be measured reliably.






	 	4.11	 	Accounting treatment method for income tax
	 
	 	 	 	Tax payable method is adopted to check the corporate income tax.






	 	4.12	 	Taxation (tax rate)
	 
	 	 	 	Value added tax rate is 6%, urban construction tax rate is 1% of the value added tax
(business tax), education surtax is 3% of the value added tax (business tax), local education
surtax is 2% of the value added tax (business tax), the applicable rate of corporate income
tax is 33%. Approved by the Local Taxation Bureau of Jingning She Autonomous County
(JINGDISHUIZHENG [2006] No.20), the company was exempt from corporate income tax in 2006 but
cannot enjoy the exemption policies by January 1, 2007. The water resource fee is charged as
RMB 0.01 per KWH 




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	 	 	 	for the grid power. (at present, it enjoys three exemption and two reduction
by one half policies).





III Appraisal Objectives



The project appraisal objective is that China Hydroelectric Corporation planed to purchase all
interests of Wuliting Hydropower Development Company. Jingdu Company has been entrusted by China
Hydroelectric Corporation to develope appraisal work for all shareholders’ equity value of Wuliting
Hydropower Development Company on the appraisal base day and supplied value references for the
forementioned economic behavior.




IV Appraisal Subject



The appraisal covers all the shareholders’ equity of Wuliting Hydropower Development Company.
The audited balance sheet of the Wuliting Hydropower Development Company on the appraisal base day
is as follows: the assets are RMB 446.8344 Million. The liabilities are RMB 366.20988344 Million.
The net assets are RMB 80 Million. Including:





	1.	 	Assets
	 
	 	 	The current assets book value is RMB 4.5746 Million, including monetary fund, receivable
account and other receivables.






The fixed assets book value is RMB 442.2598 Million; it is the assets of Wuliting hydropower
station under construction. Wuliting hydropower station project is low head and large
discharge power station in river channel. The normal pool level is 36.5m. The reservoir
capacity under normal pool level is 24,240,000 m3. The installed plant capacity is three
sets×14MW. The average annual power output is 121,350,000 kWH. The shipping flow condition of
the shipping channel is 300t and it belongs to Class III project. The hydropower



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station
assets include: the main construction are flood diversion sluice, power station in river
channel main workshops and upstream water retaining part buildings, shipping flow buildings
(the upper and lower channel of the shipping channel and chamber), both banks junction
buildings; the water
retaining part of ht power station’s upstream and downstream, auxiliary workshops and
voltage ascending station. The secondary building possesses slope protection (bank),
navigation and docking structures. The main equipment collocated in the power station
includes: water-turbine generator sets and related self-contained complete set of equipment
and voltage ascending facility. The accessory machinery collocated in the power station
includes: hoisting and machine repair facility and technology water supply system, drainage
system, compressed-air system, and oil system as well as hydropower measurement system.




	2.	 	Liabilities
	 
	 	 	The current liabilities book value is RMB 163.8344 Million, including other payables, wage
payable, payable welfare expense, payable taxation, miscellaneous payables, accrued expenses,
current maturity of long term debt.
	 
	 	 	The long-term liability book value is RMB 203 Million, it is funded debt.





V Value Type and Definition



The value type of the appraisal project is the investment value. The investment value means the
value of assets for the specific investors who have investment target or the investors of a certain
kind.



The connotation of the appraisal project investment value is the all equity value of the
shareholders of Wuliting Hydropower Development Company. It corresponds to net assets value of the
Wuliting Hydropower Development Company.



The appraisal value stated in the report, means the value of all the stockholders’



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equity on the
base date, including cash flow and appreciate depreciation and cash convention, provided that the
enterprise is running continually. Appraisal values in this report are drawn by Jing Du according
to the agreed appraisal assumptions and restrictive conditions on the appraisal subject and by
means of procedures and method stated in this report. They only serve in providing appraisal
opinions to these appraisal objectives.




VI Appraisal Base Day



The asset appraisal base day of this project is Sept. 30, 2007.



In favor of guaranteeing appraisal result and effectively in the service of appraisal objectives,
the appraisal base day has little effect on the appraisal result and is capable of correctly
reflecting the up-to-date status of related assets. The day is decided by the entrustee after the
joint negotiation and approaches the realization day of relevant economic activities as possible.



The pricing standard adopted in this appraisal is the effective pricing standard on the appraisal
base day.




VII Appraisal Assumptions and Restrictive Conditions





	1.	 	Wuliting Hydropower Station power generation amount is able to reach preliminary designed
generating capacity, and will continue its operations. Its scope of business, method and
decision-making process will have few changed in the future.
	 
	2.	 	The future macroeconomic environment of Wuliting Hydropower Development Company will have no
significant changes and the enterprise will completely observe national laws and regulations.
Laws, regulations and relevant industrial policies and supervising measures under which the
profit is forecast will also have no or few changes in the future.
	 
	3.	 	Inflation rate, national current back credit interest rate, tax base and tax rate, service
and product price fluctuations can be kept in a normal range and will have no significant
changes.





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	4.	 	Wuliting hydropower station, under construction, can be completed on schedule and passed
through the construction quality acceptance. The generator units can supply power to the grid
normally. Its future practical generation capacity can reach the generation capacity stated in
the preliminary design.
	 
	5.	 	In the forecast year, no force majeure or unpredictable factors that would cause major
detrimental effects to the main operations of the enterprise or result in great losses of the
enterprise properties would happen.
	 
	6.	 	The operator of the enterprise is responsible and top management of the enterprise is
competent for their duties.
	 
	7.	 	No legal disputes or obstacles of assets and business of Wuliting Hydropower Development
Development Company exist. The property right of assets is clear.
	 
	8.	 	The Wuliting Hydropower Development Company is able to be in sustained operation. The
continued operation qualification can be obtained when the business license recorded operation
expiry date reached.




During the appraisal, appraisers have observed requirements of assets appraisal and adopted current
terms and conditions of policies, industrial conventions, statistical parameters or preconditions
concerning the universal industrial parameters and on the appraisal base day, no deviation factors
existed. In case that great changes have taken place to further economic environment, appraisers
will assume no responsibility for different results deduced from the changed preconditions.




VIII Appraisal Principle





	1.	 	Acceptable principles stated in national and industrial regulations;
	 
	2.	 	Principles of independence, objectivity and specialty;
	 
	3.	 	Principle of continuous operation of assets, substitutability and open market;
	 
	4.	 	Principle of variation of main beneficiaries of the property right.





IX Appraisal Basis



This appraisal is made by observing related national laws, regulations and other


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fair appraisal
basis, pricing standard, appraisal references concerning assets appraisal.





	1.	 	Behavior Basis
	 
	(1)	 	Assets Appraisal Business Agreement concluded between Jing Du and China Hydroelectric
Corporationl
	 
	2.	 	Legal Basis
	 
	(1)	 	Management Measures for State-owned Assets (No.91) issued by the State Department in 1991;
	 
	(2)	 	Evaluation Management Detailed Rules on State-owned Assets (GUOZIBANFA [1992] No.36) issued
by the original State State-owned Assets Administration Bureau;
	 
	(3)	 	Opinions on Assets Appraisal Operation Norms (try out) issued by China Appraisal Society;
	 
	(4)	 	Temporary Provisions for Assets Appraisal Report Basic Content and Format (CAIPINGZI No.91)
issued by the Ministry of Finance;
	 
	(5)	 	Opinion on Certified Public Valuer Focusing on the Legal Right of Appraisal Subject (HUIXIE
[2003] No.18) issued by the China Institute of Certified Public Accountants(CICPA );
	 
	(6)	 	Instruction Opinion on Business Valuation ([2004] No.134) issued by China Appraisal Society;

	 
	(7)	 	Assets appraisal criteria;
	 
	(8)	 	Policies and regulations concerning enterprise finance, accounting, revenue and assets
management established by the Ministry of Finance, Headquarters of People’s Bank of China,
National Taxation Bureau and the original State State-owned Assets Administration Bureau.
	 
	3.	 	Property Right Basis
	 
	(1)	 	Business license of the enterprise as a legal person;
	 
	(2)	 	Zhejiang Commission of Development and Reform file “Endorsement on Lishui Wuliting
Hydro-junction Project (hydropower station) feasibility study report” ZHEJIJICHU No. 833
[2003];
	 
	(3)	 	Zhejiang Commission of Development and Reform file “Endorsement on Lishui Wuliting
Hydro-junction Project (hydropower station) preliminary design” ZHEFAGAISHEJI No. 130 [2004];




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	(4)	 	Financial materials like accounting statements;
	 
	(5)	 	Application materials for assets appraisal.
	 
	4.	 	Pricing Basis
	 
	(1)	 	Current deposit and loan rates of financial institutions issued by the People’s Bank of
China;
	 
	(2)	 	Loan Contract, Guaranty Contract , Agreement on Zhejiang Lishui Wuliting Hydropower Project
Development, Parallel in Economic Agreement and Lishui Wuliting Hydro-junction Project (
hydropower station) Preliminary Design Report offered by Wuliting Hydropower Development
Company
	 
	(3)	 	The annual interest of the registered national debt (seven-year term) face value in 2007 (the
fourteenth term)
	 
	(4)	 	The Income Tax Law of the People’s Republic of China;
	 
	(5)	 	The trail running production record and the power fee statistics from in the year 2007
offered by Wuliting Hydropower Development Company;
	 
	(6)	 	Wuliting Hydropower Station Preliminary Design Report offered by Wuliting Hydropower
Development Company
	 
	(7)	 	Relevant information of the listed power generation companies.
	 
	5.	 	Other References
	 
	(1)	 	The audit reports of Wuliting Hydropower Development Company in the year 2004, 2005 , 2006
and Sep. 30, 2007;
	 
	(2)	 	Price information and other materials collected from news, journals, webs, manufacturers and
other channels;
	 
	(3)	 	Relevant contracts and agreements provided by the appraised enterprise;

	 
	(4)	 	Relevant information mastered by appraisers and materials from field investigation.





X Appraisal Method



The income approach is adopted in this appraisal assuming the continuous operation of the
enterprise.





	1.	 	Preconditions for Application of the Income Approach





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	 	 	The income approach refers to such an assets appraisal approach that the value of the appraised
assets is decided by means of estimating the expected return of the appraised assets and
converting them into present value. Preconditions for application of the income approach as
follows:
	 
		 	(1)  The clear property right of the enterprise assets appraised;
	 
		 	(2)  The future income of enterprises able to be monetarily quantified;
	 
		 	(3)  The future operating risk of the enterprise able to be monetarily quantified.






	2.	 	Profit Forecast Basis






	(1)	 	The basis of this appraisal is established on the precondition of the normal operation of the
enterprise and all earnings are from the normal operation of the enterprise, taking no account
of accidental factors and non-comparable factors.
	 
	(2)	 	The profit forecast takes the actual stock assets of the enterprise and has taken the
influence on the normal earnings of the enterprise from the reasonable improvement of stock
assets and the additional investment into consideration.
	 
	(3)	 	The profit forecast is established on the findings of audit from Wuliting Hydropower
Development Company, in accordance with the profit forecast submitted by the enterprise and
according to relevant information collection from inquiry carried out by appraisers. It has
necessarily analyzed, estimated and confirmed the reasonableness of the profit forecast by the
enterprise and some adjustments have been made.
	 
	(4)	 	The trial running operation materials and the preliminary design report provided by Wuliting
Hydropower Development Company;
	 
	(5)	 	The unification of accounting process adopted.






	3.	 	Appraisal Model of the Income Approach







The discounted cash flow model adopts entity cash flow. Its computing formula is:





The basic format of entity cash flow model is:




     Entity value= entity cash flow t/(1+ weighted average cost of
capital)t



     Shareholders equity value—entity value= liability value



     Liability value = payable liability cash flow/(1+equal risk liability cost)t



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     The entity cash flow = after-tax profit before interest+ depreciation and
amortization-operation capital increment- capital expenditure




	4.	 	Establishment of the Forecast Period




So as to be able to reflect cash flow of the power station operation in a long time, we confirmed
the predicted period is five years (including the fourth-quarter of the year 2007). It is from the
year 2007 (the first year) to the year 2015.





	5.	 	Establishment of Benefit Period




The operation period of the Wuliting Hydropower Development Company is twenty years as stated in
the company regulations, counting from the issuance of the operation license. The operation period
stated in the business license of the enterprise as a legal person is from Dec. 21, 2001 to Dec.
21, 2021. On the base of the economic development prospect of generating power by water conservancy
and supposing the enterprise to be operate continually, the appraisal benefit period is permanent,
namely from Sep. 30, 2007 to the permanency.





	6.	 	Establishment of the Discounting Rate




According to the principle of unifying the earning capacity and the discounting rate, the earning
capacity is entity cash flow, so the discounting rate” r” will choose the weighted average cost of
capital (WACC), i.e., the return on investment capital, also called investment capital cost, a
comprehensive return rate decided by the structure and return rate of the shareholders’ equity
capitals and interest-payment debenture capitals.




     The computing formula is:


WACC = Ke*We+Kd*(1-T)*Wd

Ke: Shareholders’ equity capital cost;

Kd: debenture capital cost;

We: the ratio of shareholders’ equity capital in the capital structure;

Wd: the ratio of debenture capital in the capital structure;

T: valid income tax rate of the company;




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	(1)	 	Definition of Ke




According to the capital asset pricing model (CAPM) and on this base, considering the individual
risk earning of Wuliting Hydropower Development Company, the computing formula is:





Ke= Rf+β×Rpm+A




Rf: risk-free return rate;




RPm: market risk premium;




A: individual risk adjustment.




	•	 	Risk-free Return Rate Rf






The annual interest of the registered national debt (seven-year term) face value in 2007 (the
fourteenth term) is 3.9% and if converted into the compound interest, the interest is 3.51%, so
the risk-free return rate is 3.51%.




	•	 	Enterprise risk coefficient β






It is confirmed according to inquiry the enterprise analogous Hu Shen A shares stock listed
company Beta value, the specific confirmation process as follows:




Firstly, on the base of Beta without the finance lever from the listed companies of the same
kind, the average Beta without the finance lever can be worked out. According to the
interest-bearing debt status as well as the future financing plan of the enterprise, the Beta of
the enterprise can be worked out.




Through calculation, the Beta without finance level in the listed companies of the same kind is
0.2939.




According to the operation capacity, financing capacity and the future capital structure of the
enterprise, the debt/equity ratio (D/E) from October 2007 to 2015 can be determined. Through the
formula βL=(1+(1-T)×D/E)×βU, we can work out the Beta coefficient of the enterprise, see the
following table.




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.-Dec.,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	2008	 	2009	 	2010	 	2011	 	2012	 	2013	 	2014	 	2015
	Payment of interest
liability D/
equity E
	 	 	0.49	 	 	 	2.81	 	 	 	2.46	 	 	 	2.08	 	 	 	1.65	 	 	 	1.22	 	 	 	0.84	 	 	 	0.36	 	 	 	0.13	 






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	 	 	Oct.-Dec.,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	2008	 	2009	 	2010	 	2011	 	2012	 	2013	 	2014	 	2015
	corporate income tax
	 	 	33	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%
	BETA
	 	 	0.39	 	 	 	0.91	 	 	 	0.84	 	 	 	0.75	 	 	 	0.66	 	 	 	0.56	 	 	 	0.48	 	 	 	0.37	 	 	 	0.32	 







	•	 	Market Risk Premium Rpm






Domestic securities market is an emerging but bundle one. On one hand, the domestic market has a
relatively shorter history data and in the first several years of its establishment, the
speculation atmosphere was pregnant, so the market fluctuation is large; on the other hand,
presently, the control over the exchange flow under the capital account is strict, plus the
particularity of the stock equity separation, so the stock equity risk premium deduced directly
from the history data has a low reliability, while in the mature market, owing the long history
data, the overall stock equity risk premium on the market could be got from analyzing the
history data, so the risk premium of international emerging markets commonly could be decided by
the risk premium of the mature market. In this appraisal, the market risk premium Rpm is 7.5%.




	•	 	The risk adjustment coefficient






According to preliminary design report, the hydropower station installed capacity should reach
42,000kW, in consideration of the hydropower station approaching to completion, the 1# and 2#
sets has been in trial run. The income of the power station is relatively stabile and the
operating risk is not high. At present, the assets/liabilities ratio of the enterprise is not
high and its business finance risk is not high. Whereas the above content, the specific risk
adjustment “A” is confirmed to be 1%.




	•	 	Equity Capital Return Rate r






Ke = Rf+β×Rpm+A



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.-Dec.,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	2008	 	2009	 	2010	 	2011	 	2012	 	2013	 	2014	 	2015
	Rf
	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%
	Rm
	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%
	BETA
	 	 	0.39	 	 	 	0.91	 	 	 	0.84	 	 	 	0.75	 	 	 	0.66	 	 	 	0.56	 	 	 	0.48	 	 	 	0.37	 	 	 	0.32	 
	A
	 	 	1	%	 	 	1	%	 	 	1	%	 	 	1	%	 	 	1	%	 	 	1.00	%	 	 	1.00	%	 	 	1.00	%	 	 	1.00	%
	Ke
	 	 	7.44	%	 	 	11.34	%	 	 	10.81	%	 	 	10.14	%	 	 	9.46	%	 	 	8.71	%	 	 	8.11	%	 	 	7.29	%	 	 	6.91	%







	(2). 	 	Kd, the ratio of calculated finance expenses (according to the actually performed
interest-paid accounting contract) / the actual interest-paid accounts (in the same period).
Kd value shall be determined year by year.
	 
	(3). 	 	Definition of We and Wd





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In combination with the future operation condition, financing capability and capital structure
planning of the company, the proportion of the capitals in the total capital;




	(4). 	 	Definition of WACC






The WACC is estimated according to corporate income tax rate and forementioned indices.



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.-Dec.,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	2008	 	2009	 	2010	 	2011	 	2012	 	2013	 	2014	 	2015
	Liability proportion ( Wd))
	 	 	0.33	 	 	 	0.74	 	 	 	0.71	 	 	 	0.68	 	 	 	0.62	 	 	 	0.55	 	 	 	0.46	 	 	 	0.27	 	 	 	0.11	 
	Equity proportion (We)
	 	 	0.67	 	 	 	0.26	 	 	 	0.29	 	 	 	0.32	 	 	 	0.38	 	 	 	0.45	 	 	 	0.54	 	 	 	0.73	 	 	 	0.89	 
	Corporate income tax rate (T)
	 	 	33	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%
	WACC
	 	 	6.65	%	 	 	7.15	%	 	 	7.20	%	 	 	7.19	%	 	 	7.23	%	 	 	7.22	%	 	 	7.23	%	 	 	7.21	%	 	 	7.14	%






7. Shareholders Equity Value Calculation



The entire shareholders’ equity is decided according to the present actual operation status of the
appraised enterprise, by means of subsection forecast of the future income of Wuliting Hydropower
Development Company and converting the income into cash to realize its entity value, which then
shall be deducted by the interest-payment liabilities. Firstly, the annual cash flow of the
Wuliting Hydropower Development Company from 2007 to 2015 is forecast; secondly, it is presumed
that the enterprise will run permanently and the entity cash flow remains the same as that of 2016
after the year 2016; Thirdly, according to the selected discounting rate, the aforesaid two-stage
entity cash flows are converted into cash; Fourthly, they shall be summed up and the entity value
of Wuliting Hydropower Development Company is figured out; Finally, The shareholders equity value
is obtained by liability value subtracted from entity value. Entity value computing formula is:









	 	 	 	 	 
	In which,

	 	P:
	 	the entity value of the enterprise
	 

	 	Rt:
	 	the entity cash flow in the Tth year
	 

	 	R:
	 	weighted average cost of capital; l.
	 

	 	T:
	 	the forecast year;






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	 	n and n+1:
	 	are the last year of the forecast period and
the first year after the forecast period respectively;
	 

	 	Rn+1:
	 	the entity cash flow of the (n+1)th year,
namely the first-year pre-interest cash flow after taxes after the forecast
period.






8.     Selection of Data Estimations



The financial data forecast of Wuliting Hydropower Development Company has been adjusted based on
the manufacturing and operation capacity in the preliminary design, in accordance with national
current related laws, codes and macro-policies, the status and foreground of the China power
industry, and trend of Zhejiang power and according to the analysis the predominance and risk of
the enterprise, especially the market environment and development prospect and potentials of the
enterprises, the appraisers carried out necessary analyses and judgment for the profit forecast
from the year 2007 to the year 2015. And the rationality of forecast is affirmed, specific
adjustment are based on this.





	(1)	 	Prime Operating Revenue
	 
	 	 	The prime operating revenue Wuliting Hydropower Development Company, as a hydroelectric
enterprise, is the income from power sales.
	 
	 	 	In the forcast, various operational indicators influence on the income should be taken into
consideration.






	 	1	 	Installed generation capacity: refer to preliminary design, it is confirmed according
to practical installed generation capacity.
	 
	 	2	 	Utilization hours in a year: it is confirmed according to preliminary design
capability.
	 
	 	3	 	The station service power consumption rate, transformer loss rate and the line loss
rate for the exclusive power supply and transformation: according to the preliminary design
report,.the station service power consumption rate is
calculated by 0.5%, transformer loss rate is calculated by 1%, and the line loss rate for
the exclusive power supply and transformation is calculated by adopting 1.11%.
	 
	 	4	 	The estimation of the grid power: it is estimated based on the aforesaid indicators.





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	 	•	 	Establishment of the power price: it is established according to Parallel in economic
agreement that was signed by the enterprise and Lishui Electric Power Bureau.
	 
	 	•	 	The estimation of the prime operating revenue: it is estimated based on the aforesaid
indicators.






	(2)	 	Prime Operating Cost
	 
	 	 	The prime operating cost includes salary, depreciation and amortization, water resources fee,
repair charge, mini hydro management fee, running cost. It is estimated according to cost real
data of Wuliting Hydropower Development Company during its main business trial running and the
break-even cost data during preliminary design. The future increase is also considered.






	 	1	 	Based on the 2007 level, wages of workers will rise 5% per annum to 2013. the wage
level in the year 2014 and the year after will held the line. The number of employee is
confirmed according to personnel arrangement in preliminary design report and practical
situation
	 
	 	2	 	Depreciation and amortization, the building structures and hydraulic structures are
depreciated according to 50 years. The facility is depreciated according to 25 years.
	 
	 	3	 	The cost of water resources shall exercise the current standard: RMB 0.01 yuan for
1kW. (it enjoys three exemption and two reduction by one half policies from the year
2007).
	 
	 	4	 	Maintenance expenses: because the hydropower station is nearly established, the
maintenance expenses are increasingly growing year by year from the year 2007. It will
reach 0.5% of the predicted original value of fixed assets in the year 2012. Subsequently,
the annual maintenance expenses retain constant.
	 
	 	5	 	The cost of small hydropower station management shall exercise the current standard:
it is taken according to 35% of the cost of water resources.






	(3)	 	Tax and Associate Charge of Main Operations
	 
	 	 	Taxes and associate charges of main operations include urban construction tax





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and education surtax, which shall be estimated according to current tax standards, namely the
urban construction tax is 1% of the actual paid value added tax and the education surtax is 3%
of the actual paid value added tax. The local education surtax is 2% of the actual paid value
added tax, The water conservancy construction fund is 0.1% of the actual paid value added tax




	(4)	 	Management cost






The management cost includes salary, employee welfare cost, labor union expenditure, staff
education expenditure, staff endowment insurance, and so on.




	 	1	 	Based on the 2007 level, wages of workers will rise 5% per annum to 2013. the wage
level in the year 2014 and the year after will held the line. The number of employee is
confirmed according to personnel arrangement in preliminary design report and practical
situation.
	 
	 	2	 	Staff welfare cost is estimated according to the current standard.
	 
	 	3	 	Labor union expenditure is estimated according to the current standard.
	 
	 	4	 	Staff education expenditure is estimated according to the current standard.
	 
	 	5	 	Staff endowment insurance is referred to the current standard.
	 
	 	6	 	Bonus is estimated according to the current bonus standard.
	 
	 	7	 	The amortization of the intangible assets is estimated on the base of the actual
amounts incurred in the previous years.
	 
	 	8	 	Other management expenses are estimated on the base of the preliminary design report.






	(5)	 	Financial expenses






Financial expenses: it is estimated according to enterprise implementary loan agreement and in
combination with the future operation condition, financing capability and future capital
structure planning of the enterprise.




	(6)	 	Non-operating Income and Non-operating Expenses






Non-operating revenues and expenses are not recurrenting items, so they haven’t been taken into
consideration in this profit forecast.



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	(7)	 	Corporate income tax






The corporate income tax is determined according to the Company’s implemented tax rate: in 2007,
it is estimated according to the current income tax rate (33%). After the year 2008, it will
carry out the new income tax rate stated by the newly-published “Enterprise Income Tax Law of
the People’s Republic of China”, i.e. 25%. Because the enterprise has not obtained related file
of income tax relief, the appraisal takes no account of the influence of income tax relief.




	(8)	 	After-tax Profit






Based on the said profit and loss items like income and cost, the after-tax profit is decided.




	(9)	 	Net Investment






			
	Net investment =	 	capital expenditure + increase of operation funds - depreciation and amortization






	 	1	 	Capital Expenditure
	 
	 	 	 	The capital expenditure is decided by the new power station plan. At the same time, on the
condition of the permanent operation of the enterprise, the funds of depreciation and
amortization are equivalent to the capital expenditure. Because the appraisal takes no
account of additional investment, provided that the enterprise kept simple reproduction and
the facility requires resetting, the annual capital expenditure sum is equal to the
provision of depreciation of equipment.
	 
	 	2	 	Increase of Operation Funds
	 
	 	 	 	The demand for the operation funds in the company is slim and the cash flow brought by the
daily power sales is able to support the daily operation turnover, so the increase of
operation funds is taken no account of.
	 
	 	•	 	Depreciation and Amortization
	 
	 	 	 	The forecast value of the depreciation and amortization is decided on the basis of forecast
depreciation of fixed assets of main business cost.





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	(10)	 	Forecast of Annual Stockholders’ Cash Flow
	 
	 	 	According to the said forecasts, the forecast of annual shareholders’ cash flow is as follows:





Unit: RMB, 10 thousand




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.-	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Dec.,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Item	 	2007	 	2008	 	2009	 	2010	 	2011	 	2012	 	2013	 	2014	 	2015
	I. Prime Operating Revenue
	 	 	770.00	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 
	Minus: discount distribution
	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Prime Operating net sale
	 	 	770.00	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 	 	 	4,971.29	 
	Minus: Cost of Main Operations
	 	 	249.59	 	 	 	1,361.77	 	 	 	1,381.84	 	 	 	1,437.52	 	 	 	1,461.92	 	 	 	1,522.38	 	 	 	1,525.88	 	 	 	1,525.88	 	 	 	1,525.88	 
	Tax and Associate Charge of Main Operations
	 	 	3.54	 	 	 	22.87	 	 	 	22.87	 	 	 	22.87	 	 	 	22.87	 	 	 	22.87	 	 	 	22.87	 	 	 	22.87	 	 	 	22.87	 
	II. Profits from Main Operations
	 	 	516.87	 	 	 	3,586.65	 	 	 	3,566.58	 	 	 	3,510.90	 	 	 	3,486.50	 	 	 	3,426.04	 	 	 	3,422.54	 	 	 	3,422.54	 	 	 	3,422.54	 
	Add: other business profit
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Minus: the operation expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	General and Administrative Expense
	 	 	43.25	 	 	 	259.50	 	 	 	267.43	 	 	 	275.77	 	 	 	284.55	 	 	 	293.72	 	 	 	303.38	 	 	 	303.38	 	 	 	303.38	 
	Financial Expenses
	 	 	295.83	 	 	 	1,699.73	 	 	 	1,503.93	 	 	 	1,287.84	 	 	 	1,033.86	 	 	 	779.27	 	 	 	557.40	 	 	 	272.28	 	 	 	120.00	 
	III. Operating Income
	 	 	177.79	 	 	 	1,627.42	 	 	 	1,795.22	 	 	 	1,947.29	 	 	 	2,168.09	 	 	 	2,353.05	 	 	 	2,561.76	 	 	 	2,846.88	 	 	 	2,999.16	 
	Add: investment income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Subsidiary earnings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-operating Income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Minus: Non-operating Expense
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Iv. Income Before Tax
	 	 	177.79	 	 	 	1,627.42	 	 	 	1,795.22	 	 	 	1,947.29	 	 	 	2,168.09	 	 	 	2,353.05	 	 	 	2,561.76	 	 	 	2,846.88	 	 	 	2,999.16	 
	Minus: Income Tax
	 	 	58.67	 	 	 	406.86	 	 	 	448.81	 	 	 	486.82	 	 	 	542.02	 	 	 	588.26	 	 	 	640.44	 	 	 	711.72	 	 	 	749.79	 
	V. Net Income
	 	 	119.12	 	 	 	1,220.56	 	 	 	1,346.41	 	 	 	1,460.47	 	 	 	1,626.07	 	 	 	1,764.79	 	 	 	1,921.32	 	 	 	2,135.16	 	 	 	2,249.37	 
	VI. Pre-interest Profit After Taxes
	 	 	317.33	 	 	 	2,495.36	 	 	 	2,474.36	 	 	 	2,426.35	 	 	 	2,401.46	 	 	 	2,349.24	 	 	 	2,339.37	 	 	 	2,339.37	 	 	 	2,339.37	 
	Add: depreciation and amortization
	 	 	191.58	 	 	 	1,149.43	 	 	 	1,149.43	 	 	 	1,149.43	 	 	 	1,149.43	 	 	 	1,149.43	 	 	 	1,149.43	 	 	 	1,149.43	 	 	 	1,149.43	 
	Minus: the capital expenditure
	 	 	82.72	 	 	 	496.29	 	 	 	496.29	 	 	 	496.29	 	 	 	496.29	 	 	 	496.29	 	 	 	496.29	 	 	 	496.29	 	 	 	496.29	 
	Minus: business current assets increment
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	VIII Entity cash flow
	 	 	426.19	 	 	 	3,148.50	 	 	 	3,127.50	 	 	 	3,079.49	 	 	 	3,054.60	 	 	 	3,002.38	 	 	 	2,992.51	 	 	 	2,992.51	 	 	 	2,992.51	 







	(11)	 	The estimation for entity cash flow present value
	 
	 	 	Through above indictor’s estimation, it is calculated by adopting the above-mentioned entity
cash flow calculation of present value. The entity value of enterprise forever operation state
is RMB 419.9352 Million.
	 
	(12)	 	Shareholders equity value calculation
	 
	 	 	Shareholders equity value = entity value— liability value






	 	•	 	Liability value
	 
	 	 	 	The enterprise has RMB 237 Million for various loans on appraisal base day. The liability
value is RMB 237 Million.





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	 	•	 	Interests Value






			
	Shareholders equity value	 	=entity value - liability value

=419,535,200-237,000,000

= 182,535,200





XI Implementation Process and Conditions of Appraisal Procedures



The appraisal process can be divided into five stages:





	(I)	 	Acceptance of Commission




Main jobs of this stage include: defining appraisal objectives, scope and the appraisal base day,
establishing work scheme of assets appraisal and signing agreement on assets appraisal.





	(II)	 	Preparations






	1.	 	As required by the assets appraisal, arranging the application form of assets appraisal for
the entrustee and the appraised enterprise and assisting the appraised enterprise for assets
declaration;
	 
	2.	 	Collecting and preparing materials required by assets appraisal.
	 
	(III)	 	Assets Check and Verification
	 
	1.	 	Listening to introductions on the enterprise status, the history and status of the appraised
assets by persons concerned in the assets-holding enterprise;
	 
	2.	 	Consulting and discriminating the application form of assets appraisal provided by the
enterprise, checking and verifying the physical assets with the financial records of the
enterprise, proving the authenticity and integrality of declaration materials submitted by the
enterprise;
	 
	3.	 	Verifying the real objects on the scene according to the application form of assets
appraisal, looking into and recording the assets conditions, talking with asset management
personnel to learn the operation and management status of





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	 	 	assets, investigating whether there are overage assets influencing appraisal;
	 
	4.	 	Examining certificates of the property right of the appraised assets, equipment purchase
contract, accounting materials like account current and invoices, and making clear of the
enterprise assets property right;
	 
	5.	 	Consulting the project approximate budget and audit materials, spot-examining assets
discharge statement, equipment operation records, maintenance and accident records and looking
into the remaining status of assets to confirm the continuous development of assets operation;
	 
	6.	 	Investigating the operation, financial and future development status of the enterprise,
making proper adjustments after analyzing related indices;
	 
	7.	 	Investigating and confirming the market environment where the appraised enterprise is
located.






	(IV)	 	Estimations and Gathering






	1.	 	Analyzing obtained materials and selecting proper appraisal approaches according to the
status and features of the appraised assets;
	 
	2.	 	Acquiring pricing basis and price materials;
	 
	3.	 	Calculating the appraisal value;
	 
	4.	 	Analyzing the appraisal conclusion and adjusting, amend and perfecting the assets appraisal
result;
	 
	5.	 	Writing appraisal explanations and appraisal report;
	 
	6.	 	Carrying out three-level double checks, supplementing and amending the appraisal report and
appraisal explanations.






	(V)	 	Submittal of the Report
	 
	 	 	According to the appraisal condition, submitting Assets Appraisal report discussion
draft to the entrustee; according to opinions from the entrustee and the assets-holding
enterprise, making necessary amendments; submitting a formal Assets Appraisal report to the
entrustee after it has been confirmed all right by the entrustee and the appraised
enterprise.





XII Appraisal Conclusions




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	(I)	 	The Legal Property Right of the Appraisal Subject
	 
	 	 	The work of certified public valuers aims to estimate and professionally comment the value of
the appraisal subject, but the confirmation of the legal property right of the appraisal subject
or comment on them is beyond their work scope. The entrustee and the related disputing party
shall offer materials on the legal property right of the appraisal subject and shall assume all
responsibilities on the authenticity, legitimacy and integrality of such materials. Certified
public valuers are not entitled to confirm or comment the legal property right of the appraisal
subject, so we hereby provide no guarantee to the legal property of the appraisal subject. The
entrustee and related disputing parties shall pay attention to this.
	 
	 	 	According to Opinion on Certified Public Valuer Focusing on the Legal Right of Appraisal
Subject, on the appraisal scene, appraisers have properly paid attention to the property right
to the appraisal subject, collected and checked certificates of the legal property right of the
appraisal subject and investigated issues concerning the property right.
	 
	 	 	The prime assets of Wuliting Hydropower Development Company are the Wuliting hydropower station
under construction. The project has not been completed. The acceptance of works has not been
transacted yet. The state-owned land use certificate and building ownership certificate have
not been transacted yet.
	 
	(II)	 	Appraisal conclusion
	 
	 	 	Up to the appraisal base day Sep. 30, 2007, by means of income approach, the entity value
appraisal value of Wuliting Hydropower Development Company is RMB 419.5352 Million and all
shareholders’ equity appraisal value is RMB 182.5352 Million, under the condition of continual
operation.
	 
	(III)	 	Explanations to Appraisal Conclusions






	1.	 	The selling price of power in Wuliting Hydropower Development Company is in accordance with
the current standard, taking no consideration of prospective adjustment.





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	2.	 	Because the enterprise has not obtained related file of income tax relief. The appraisal
takes no account of the influence of income tax relief.
	 
	3.	 	The peak and valley power generation ratio of the appraisal is confirmed according to data in
“Zhejiang Lishui Wuliting hydro-junction project preliminary design report” and in combination
with the statistical data of trial operation. The appraisal takes no account of the influence
of the peak and valley power generation ration change on income.
	 
	4.	 	Wulingting Hydropower Development Company estimated the predicted grid power on the basis of
long term average annual power output of the preliminary design. In the actual operation, the
grid power quantity may be higher or lower than the aforesaid level due to the impacts of the
natural factors.
	 
	5.	 	The appraisal conclusion is the working results after carrying out all the aforesaid
appraisal procedure. The appraisal conclusion is not a guarantee for the operation status and
operation achievements of the enterprise in the future.





XIII Explanations to Particular Issues



Issues that may influence the appraisal conclusions but are beyond the capabilities of appraisers
for estimation are including but not limited to:





	1.	 	Assets and liabilities of Wuliting Hydropower Development Company to be appraised have
already been audited by the China certified account and acquired the audited accounting
statement on the appraisal base day.
	 
	2.	 	Materials provided by the top management of Wuliting Hydropower Development Company and other
personnel are the basis of this report, so Wuliting Hydropower Development Company shall be
responsible for the authenticity, legitimacy and allsidedness of such materials. For defect
issues that exist in Wuliting Hydropower Development Company and may influence the appraisal
conclusions, if not particularly stated or expressed clearly in the appraisal field
investigation or unable to be obtained according to the professional experience, the appraisal
institution and appraisers shall be exempt from any responsibilities thereof.





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	3.	 	The Wuliting Hydropower Development Company submitted Zhejiang Lishui Wuliting Hydro-junction
Project Preliminary Design Report and The Profit Forecast from the Year 2007 to 2015, which
are one of the main bases for the appraisal report.
	 
	4.	 	Wuliting Hydropower Station has not been completed yet, this appraisal supposes the appraisal
result that the hydropower station can be completed and can be operated normally. It takes no
account of the payable associated costs for completing the hydropower station project and
putting into normal operation conditions.
	 
	5.	 	This appraisal supposes that the hydropower station can be completed on schedule and passed
through construction quality acceptance. The power generation can reach multi-year average
annual power output stated in the preliminary design report.
	 
	6.	 	The influence from pledge and guarantee in the appraisal conclusions hasn’t been taken into
consideration.
	 
	7.	 	Interests or obligations beyond the appraisal scope, such as contingent benefit, contingent
assets or contingent liabilities, haven’t been taken into consideration.
	 
	 	 	It is hereby notified that the report users shall pay attention to the influence on the appraisal
conclusions from the said issues.





XIV Major Issues after Appraisal Base Day





	1.	 	They refer to key issues that happen between the appraisal base day and the submittal day of
the appraisal report.
	 
	2.	 	On November 7, 2007, Zhejiang Guangsha Hydropower Investment Co., Ltd. signed stock rights
transfer agreement with Guangsha Construction Group Co., Ltd and Lu Chunliang. Zhejiang
Guangsha Hydropower Investment Co., Ltd. transferred 20% stock rights of Wuliting Hydropower
Development Co., Ltd. to Guangsha Construction Group Co., Ltd. and transferred 60% stock
rights of Wuliting Hydropower Development Co., Ltd. to Lu Chunliang. After stock rights
transfer, the shareholder and amount of investment, Lu Chunliang RMB 64 Million, occupies 80%
stock rights; Guangsha Construction Group Co., Ltd. RMB 16 Million, occupies 20% stock rights.





     Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     33



 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report





	3.	 	Other key issues that haven’t been provided by the appraised enterprise or discovered by
appraisers after the appraisal base day;
	 
	4.	 	After the appraisal base day and within the valid period of the appraisal report, if the
amount of assets varies, it shall be priced according to the original appraisal approach of
such assets and corresponding adjustments of assets shall be made. Due to specific causes, if
the price standard of assets has been changed, which has obviously influenced the appraisal
assets. the entrustee shall request the appraisal institution to reassess the appraisal value
according to the practical situations.





XV Legal Effect of the Appraisal Report





	1.	 	Appraisal conclusions stated in the report are merely a reflection of the current fair market
price that was decided according to the principle of open market, of the appraised assets
under the appraisal objectives, taking no consideration of influences from losses caused by
activities like pledge and guarantee, or significant changes of the national macroeconomic
policies, or natural forces and other force majeure. The precondition of this report is the
continuous operation of the assets, so if the precondition is changed, the appraisal
conclusions will be null. The report is exclusive for the appraisal objectives, so the signing
certified public valuers and the appraisal institution shall be exempt from any
responsibilities from results caused by misapplications.
	 
	2.	 	The valid date of this report is one year, namely from September 30, 2007 to September 29,
2008. During this period, if the appraisal objectives are to be realized, the report shall
work as the pricing basis and shall be adjusted, in the form of self-regulating or entrusting
the appraisal company, according to issues concerned after the appraisal base day, the
appraisal conclusions in this will be invalid after one year.
	 
	3.	 	Appraisal conclusions in this report are exclusive for the entrustee to realize the appraisal
objectives.





XVI Appraisal Reporting Day




Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     34




 









 








Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report



The formal presentation data of the Assets Appraisal report is November 15, 2007.





Assets Appraisal Institution: Beijing Jing Du Assets Valuation Company Ltd.




Legal Representative of Assets Appraisal Institution: Jiang Jianying




China Certified Public Valuer: Wang Ri




China Certified Public Valuer: Sun Chaohui




Nov. 15, 2007



Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     35




 









 








Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




Suichang Jiulongshan Hydropower




Development Co., Ltd.




Share Transfer Project




Document for Future Reference




Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     36




 









 





Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




Statement on the Application Scope of Document for Future Reference of the Assets Appraisal Report



This document is exclusive for the economic activities to fulfill appraisal objectives and
delivered to the administrative competent departments for assets appraisal for review. The use
right of the appraisal report belongs to the entrustee, so without the permission of the entrustee,
no offer or disclosure of this report shall be made by the appraisal institution. At the same time,
without the approval of us, the whole or partial report shall not be published on the open media by
the entrustee. Jingdu is exempt from any legal responsibilities for any other results of economic
activities by due to the inappropriate quotation by the entrustee of the appraisal result.




Beijing Jingdu Assets Valuation Co., Ltd.



Nov. 15, 2007



Beijing Jingdu Assets Valuation Co., Ltd.     3F, Scitech Plaza     Fax: 0086-10-65227608     37





 











 





Appendix 6




Breakdown of Restructuring Credits and Debts of the Object Company and Measures therefore




     By September 30, 2007, the Audit Report of Beijing Jingdu CPA Limited affirms that the capital
balance in the finance account of Wuliting Hydropower Project (“Object Company”, same as below) is
RMB 537,312.59, the balance of accounts receivable is RMB 3,739,709.76, the balance of other
receivables is RMB 297,592.50 and the balance of liabilities other than those from banks is RMB
139,834,423.64.



     Upon consultation between the Transferors and the Transferee, they have agreed as follows
regarding the aforesaid credits and debts (including currency capital):



     1. In accordance with the Equity Interest Transfer Contract, the Transferors shall restructure
the credits (including currency capital, amounts receivable and other receivables, same as below)
and debts (including other payables, payable compensation to staff, tax payable, interest payable,
excluding bank loans, same as below) of the Object Company, in other words, the Object Company will
pass the credits and debts to Zhejiang Guangsha Hydropower Investment Co., Ltd by signing credits
and debts agreements with creditors and debtors.



     2. Upon restructuring, the Object Company shall receive from or pay Zhejiang Guangsha
Hydropower Investment Co., Ltd RMB 135,259,808.79 as the difference between the credits and debts;
in accordance with the Equity Interest Transfer Agreement and Framework Agreement, the Transferee
shall pay Zhejiang Guangsha Hydropower Investment Co., Ltd such amount by increasing the registered
capital; the credits and debts of the Object Company shall be enjoyed and borne by Guangsha
Hydropower Investment Co., Ltd.



     3. Changes in the credits and debts from the Base Date to Delivery Date shall be settled by
the Transferors and Transferee through settling the credits and debts as of



1









 







the Delivery Date in accordance with the Equity Interest Transfer Contract and these measures.



     4. Prior to the Delivery Date, returned taxes (if any) during the normal course of business of
the Object shall belong to the Transferors; if such taxes are received by the Object Company after
the Delivery Date, they shall be paid to Zhengjiang Guangsha Hydropower Investment Co.,Ltd within
three (3) days upon receipt.



     5. Breakdown of the credits and debts as of the assessment date is as follows (attached
hereto):



     Date: _________ 2007




2









 








Breakdown of Wuliting Credits and Debts




	 	 	 	 	 	 	 	 	 	 	 
	 	 	By September 30	 	Unit: Yuan
	Item	 	Unit or detail	 	Amount	 	Content	 	Note
	Currency capital
	 	 	 	 	228,386.62	 	 	 	 	 
	 
	 	 	 	 	 	 	 	Revenue of power	 	Bad debt reserve
	Receivables
	 	Lishui City Power Bureau	 	 	11,199,804.42	 	 	generation	 	559,990.22
	 
	 	 	 	 	 	 	 	 	 	Bad debt reserve
	Other receivables
	 	 	 	 	8,860,648.89	 	 	 	 	443,032.45
	 
	 	Zhangjiang Guangsha Shareholding Co., Ltd.	 	 	8,355,648.89	 	 	Loans	 	 
	 
	 	Loan deposit at Jingning Agricultural Bank of China	 	 	500,000.00	 	 	Pre-paid insurance through the life insurance company	 	 
	 
	 	Cheng Jun	 	 	5,000.00	 	 	Reserve	 	 
	Total credits
	 	 	 	 	20,288,839.93	 	 	 	 	 
	Other payables
	 	 	 	 	24,487,639.81	 	 	 	 	 
	 
	 	Guangsha Hydropower Investment	 	 	22,881,639.81	 	 	Loans	 	 
	 
	 	Lishui Oujiang Power-generating Engineering Co., Ltd.	 	 	1,500,000.00	 	 	Capital occupancy fee	 	 
	 
	 	Zhejiang Water Conservancy Hekou Research Institute	 	 	45,000.00	 	 	Consultancy fee	 	 
	 
	 	Lishui Power Industry Association	 	 	50,000.00	 	 	Membership fee to hydropower industry association	 	 
	 
	 	Jingning Feihe Hydropwer Company	 	 	11,000.00	 	 	Maintenance fee for 10kv wire	 	 
	Compensation
payable to staff
	 	 	 	 	427,050.62	 	 	 	 	 
	 
	 	Staff welfare	 	 	302,358.86	 	 	 	 	 
	 
	 	Social insurance	 	 	63,616.02	 	 	 	 	 
	 
	 	Union fee	 	 	61,075.74	 	 	 	 	 
	Taxes payable
	 	 	 	 	6,794,633.00	 	 	 	 	 
	 
	 	VAT	 	 	952,039.29	 	 	 	 	 
	 
	 	Urban maintenance and construction tax	 	 	9,635.16	 	 	 	 	 
	 
	 	Individual income tax	 	 	595.00	 	 	 	 	 







3









 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	By September 30	 	Unit: Yuan
	Item	 	Unit or detail	 	Amount	 	Content	 	Note
	 
	 	Stamp tax	 	 	5,087.42	 	 	 	 	 
	 
	 	Education surcharge	 	 	48,175.79	 	 	 	 	 
	 
	 	Special fund for water conservancy projects	 	 	16,279.73	 	 	 	 	 
	 
	 	Water resource fee	 	 	1,200,806.10	 	 	 	 	 
	 
	 	Micro hydropower management fee	 	 	420,317.13	 	 	 	 	 
	 
	 	Enterprise income tax	 	 	4,141,697.38	 	 	 	 	 
	Interest payable
	 	 	 	 	169,505.00	 	 	 	 	 
	 
	 	Total Debts	 	 	31,878,828.43	 	 	 	 	 







4









 





Appendix 7




Letter of Undertaking




China Hydroelectric Corporation:



We had provided guarantee for the following bank loans of Qingtian Wuliting Hydropower Development
Co., Ltd as set forth in Appendix 4:



Whereas CHC is willing to purchase one hundred percent of the equity interest of Qingtian Wuliting
Hydropower Development Co., Ltd, we hereby undertake that:





	1.	 	We will continually fulfill our guarantee obligations under above-mentioned guarantee
contracts until the fulfillment of the guarantee contracts are legally completed.
	 
	2.	 	If the creditor, the lending bank, requests us to provide the guarantee and perform the
procedure separately, we hereby undertake that, prior to the remitting date specified in
Article 7.2 of “Formal Equity Interest Transfer Contract of Qingtian Wuliting Hydropower
Development Co., Ltd” signed by CHC, Zhejiang Guangsha Construction Group Co., Ltd and Lu
Chunliang, we will provide the relevant guarantee and perform the procedure unconditionally in
accordance with the creditor’s requirements and upon the Transferee’s provision of counter
guarantee and assumption of the guarantee cost and provide an ongoing guarantee for the undue
loans of Qingtian Wuliting Hydropower Development Co., Ltd.




Guangsha Construction Group Co., Ltd.



December 13 , 2007